BT 0845 & 0870 retail price change- Suspected Internet Service Provider (ISP) margin squeeze

19 August 2004

Complainant: Ofcom own initiative investigation
Complaint against: BT
Case opened: 18 July 2003
Case closed: 19 August 2004
Issue: Suspected margin squeeze by BT on ISPs
Relevant instrument: Chapter II of the Competition Act 1998 (abuse of a dominant position) and Article 82 of the EC Treaty

Ofcom closed this case on 19 August 2004 by issuing a 'no grounds for action' decision. A non-confidential version of the decision has been prepared and is available at the link below or via the related items.

Case Leader: Richard Thompson (e-mail: Richard.Thompson@ofcom.org.uk
Case Reference: CW/00647/07/03

Text published when the case was opened

Complainant: Oftel own initiative investigation
Complaint against: BT
Case opened: 18 July 2003
Issue: Suspected margin squeeze by BT on ISPs
Relevant instrument: Chapter II of the Competition Act 1998 (abuse of a dominant position)

Update note - 4 May 2004

The Competition Act 1998 has been amended as of 1 May 2004 in order to implement EC Regulation 1/2003 (the "Modernisation Regulation") into UK law. Ofcom now has the power under the Act to apply Article 81 and Article 82 of the EC Treaty in full, in addition to the Chapter I and Chapter II prohibitions.

As of 1 May 2004, Ofcom is conducting this investigation under Article 82 of the EC Treaty, in addition to under the Chapter II prohibition.

End of update note

From 1 June 2003, BT lowered the evening retail price for local calls (from 1.5ppm to 1ppm) and the weekend retail price for national calls (from 2ppm to 1.5ppm). The retail prices for calls to the 0845 and 0870 number ranges are linked to the cost of local and national geographic calls respectively. This means that the BT retail price for evening 0845 calls is also reduced to 1ppm, and the weekend retail price for 0870 numbers is also reduced to 1.5ppm. BT's downstream termination business has passed on the effects of these retail price changes in the out-payments it makes to ISP customers purchasing internet termination services from BT, with effect from 18 July 2003.

BT supplies wholesale inputs to downstream ISPs for the provision of narrowband metered internet access. The Director General of Telecommunications (the Director) believes that BT may be dominant in relevant wholesale input markets. BT also competes in the downstream narrowband metered internet access market in supplying its own ISP business. Under section 25 of the Competition Act, the Director may conduct an investigation if there are reasonable grounds for suspecting that the Chapter II prohibition has been infringed. Given BT's likely dominance in upstream markets, the significant reductions made in out-payments to ISPs and representations made by industry parties in response to BT's price changes, the Director has a reasonable suspicion that BT's actions in reducing out-payments to ISPs may have the effect of imposing a margin squeeze on its competitors in downstream markets.

Stakeholders who wish to supply relevant information and evidence in respect of this investigation should submit this to Oftel by 4 August 2003

Case Leader: Richard Thompson (e-mail: richard.thompson@ofcom.org.uk
Case Reference:
CW/00647/07/03