BT's tariff structure and pricing for its 'NetStream 16' circuits

26 January 2004

Complainant : The complainant wishes to remain anonymous
Complaint against: BT
Case opened: 28 August 2003
Case closed: 30 March 2005
Issue: Suspected anti-competitive effect of BT's tariff structure and pricing for its 'NetStream 16' circuits used in the provision of mobile radio base station backhaul circuits
Relevant instrument: Section 18 of the Competition Act 1998 (the Chapter II prohibition - abuse of a dominant position) and Article 82 of the EC Treaty

In August 2003 a complaint was submitted to Oftel regarding BT's NetStream 16 and NetStream 16 Longline tariffs. In particular, this complaint concerned discounts available under the NetStream 16 and NetStream 16 Longline tariffs, which the complainant alleged made the tariffs unmatchable and therefore anti-competitive. The investigation focused mainly on NetStream 16 Longline circuits that are used by mobile network operators in the provision of radio base station (RBS) backhaul.

Oftel ceased as of 29 December 2003 and its powers under the Competition Act 1998 have now been assumed by Ofcom.

During the course of this investigation, Ofcom concluded its review of the retail leased lines, symmetric broadband origination and wholesale trunk segments markets (http://www.ofcom.org.uk/consult/condocs/llmr/statement/state_note.pdf) in which it required that BT provide a cost-based RBS backhaul product. Ofcom understands that the introduction of this product is likely to reduce demand for circuits under the NetStream 16 Longline tariff going forward.

In addition, certain issues related to BT's business pricing, including the use of discounts, were raised as part of Ofcom's Telecommunications Strategic Review ('TSR'). As part of the implementation of the TSR, Ofcom is undertaking a broader regulatory review of BT's business pricing. Ofcom intends to consider the issue of business pricing discount structures in the context of this work package.

In discussions with the complainant Ofcom confirmed that it intends to consider the issue of business pricing discount structures in the context of the TSR implementation work package. On 15 February 2005 the complainant withdrew its complaint. The complainant noted the developments highlighted above, in particular the work Ofcom is undertaking as part of its implementation of the TSR.

In the light of the complainant's withdrawal of its complaint and the likely reduced relevance of the NetStream 16 Longline tariff going forward, Ofcom considers that its resources are now better placed in addressing BT's business pricing discount structures as part of its broader strategic review. For reasons of administrative priority, Ofcom has therefore closed its investigation into this matter.

Case Leader : Robert MacDougall (020 7783 4338 e-mail: Robert.MacDougall@ofcom.org.uk)
Case Reference: CW/00669/08/03

Text published when the case was opened

Complainant: The complainant wishes to remain anonymous
Complaint against: BT
Case opened: 28 August 2003
Issue: Suspected anti-competitive effect of BT's tariff structure and pricing for its
'NetStream 16' circuits used in the provision of mobile radio base station
backhaul circuits
Relevant instrument: Section 18 of the Competition Act 1998 (the Chapter II
prohibition - 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

Update note: 23 April 2004

Ofcom has clarified the scope of its investigation into BT's tariff structure and pricing for its NetStream 16 and NetStream 16 Longline circuits as follows:

On 28 August 2003, Oftel received a complaint alleging that BT's tariff structure and pricing for its NetStream 16 and NetStream 16 Longline circuits are contrary to section 18 of the Competition Act 1998. As of 29 December 2003, Ofcom has assumed responsibility for investigating the complaint.

In the light of the latest published draft of the leased lines market review, Ofcom has reasonable grounds to suspect that BT holds a dominant position in the market for low bandwidth traditional interface symmetric broadband origination services.

Ofcom has reasonable grounds to suspect that BT is abusing this dominant position in relation to its tariff structure and pricing for its NetStream 16 and NetStream 16 Longline circuits.

Ofcom's investigation is focused on whether:

" the structure of charges applied to NetStream 16 Longline access components and NetStream 16 Longline circuits; and

" the discounts applicable to NetStream 16 Longline and NetStream 16 circuit rentals,

are anti-competitive and foreclose competition.

Ofcom is currently investigating these allegations under the Competition Act 1998.

End of update note

Oftel has received a complaint alleging that BT's tariff structure and pricing for its 'NetStream 16' circuits (used in the provision of mobile radio base station (RBS) backhaul circuits) are contrary to section 18 of the Competition Act 1998 (the "Act"). RBS backhaul circuits are a form of symmetric broadband origination that provide transparent transmission capacity between a mobile operator's RBS premises and that operator's point of connection with the network of the operator supplying the RBS backhaul circuit (such as BT). They might include some trunk component if the mobile operator requires circuits that pass through trunk network to the RBS. The BT products which are the subject of this complaint are NetStream 16 Longline circuits (2M/bits) (terminating segment) and NetStream 16 circuits (155M/bits) (trunk segment). For each NetStream 16 product there are two charges: an access charge and a circuit rental.

Specifically, it is alleged that BT is abusing its dominant position in the wholesale symmetric broadband origination and wholesale trunk segment markets in that:

  • BT's access charges for both NetStream 16 circuits are structured such that the access charges are capped at a specified number of sites, after which there is no charge. A competitor competing to supply a customer which has reached the cap with BT is therefore unable to charge an access charge and has to compete on rental charges alone. These rental charges are also subject to discounting by BT with the result that the effect of BT's charges is unmatchable and therefore anti-competitive.
  • the access charges for NetStream 16 Longline (terminating segment) are linked to the purchase of NetStream 16 (trunk segment). This ties customers into purchasing both NetStream 16 products from BT and discriminates in favour of BT's downstream trunk segment business;
  • the discounts BT offers on access charges for its NetStream 16 (trunk) products are structured in such a way as to incentivise customers to obtain all or most of their trunk circuits requirements from BT and therefore operate as an anti-competitive loyalty discount;
  • the rental charges for both NetStream 16 products are linked and operate so as to tie BT's trunk product and leverage its market power from terminating segments into the trunk market where it faces greater competition.

Oftel is investigating these allegations under the Competition Act.

Case Leader: Claire Pointing (e-mail: Claire.Pointing@ofcom.org.uk)
Case Reference: CW/00669/08/03