Dispute between Thus and BT about payment terms for PPC, IEC and IBC products

26 January 2007

Complainant: Thus plc (“Thus”)
Complaint against: British Telecommunications plc (“BT”)
Case opened: 12 September 2006
Case closed: 25 January 2007
Issue: Thus requested Ofcom to resolve a dispute between Thus and BT Wholesale regarding the payment terms for Partial Private Circuits (“PPCs”), Interconnect Extension Circuits (“IECs”) and Intra-building Circuits (“IBCs”).
Relevant instrument: Ofcom resolved this dispute using powers under Chapter 3 of Part 2 of the Act

On 25 January 2007 Ofcom issued a determination under sections 188 and 190 of the Communications Act 2003 resolving this dispute.

Please see the link at the bottom of the page.

Case Leader: Ruth Gibson (e-mail: Ruth.Gibson@ofcom.org.uk )
Case Reference: CW/00916/08/06

Text published when the case was opened

Dispute between Thus and BT about payment terms for PPC, IEC and IBC products 

Complainant: Thus plc (“Thus”)
Complaint against: British Telecommunications plc (“BT”)
Case opened: 12 September 2006
Issue: Thus has requested Ofcom to resolve a dispute between Thus and BT Wholesale regarding the payment terms for Partial Private Circuits (“PPCs”), Interconnect Extension Circuits (“IECs”) and Intra-building Circuits (“IBCs”).
Relevant instrument: Ofcom intends to resolve this dispute using powers under Chapter 3 of Part 2 of the Act

Update note – 10 January 2007

Ofcom issued an additional Annex (Annex 4) to the draft determination on 9 January 2007, providing further details of how Ofcom assessed materiality. Please see the related item.

End of update note

Update note – 5 January 2007  

Ofcom issued a draft determination in relation to this dispute to the parties in dispute on 22 December 2006. Please see the related item.

Ofcom will be consulting on its proposals until 5pm on 12 January 2007. Please send responses to:

Ruth Gibson
Competition Group
Ofcom
Riverside House
2a Southwark Bridge Road
London
SE1 9HA

or by email to ruth.gibson@ofcom.org.uk

End of update note

The products which are the subject of this dispute - PPCs, IECs and IBCs - are invoiced by BT quarterly in advance, with 30 days to pay from the date of the invoice. Thus is a customer of BT for these products. Thus alleges that BT's payment terms for these products are in breach of SMP conditions G1.2, H1.2 and AA1(a).2, which require BT to offer certain products and services on fair and reasonable terms, conditions and charges. Thus submits that these payment terms do not meet BT's SMP obligations to provide such products on fair and reasonable terms, conditions and charges, as the working capital required to support the quarterly advance payments places a significant burden on its business and places Thus at a competitive disadvantage relative to BT's downstream businesses. Thus also alleges that the payment terms are out of step with the terms offered by other communications providers across Europe, and other UK regulated industries.

Thus requests Ofcom to resolve the dispute by determining:

  • BT has been in breach of SMP conditions G1.2, H1.2 and AA1(a).2 in respect of PPC and IEC/ IBC payment terms respectively, since the date those conditions came into force;
  • BT must change the disputed payment terms to invoiced monthly in arrears, payable within 30 days after the date of the invoice, or such payment terms as Ofcom considers reasonable, with effect from 1 January 2008;
  • As an interim measure, BT must offer adjustments to the current payment terms which have the same effect on average working capital as the changes at (b) above, with effect from 1 January 2007 (or such date as Ofcom considers reasonable;
  • In the case of PPCs, BT must offer its customers the option of continuing with the interim measures indefinitely, or until the monthly invoicing has been implemented and problems with the accuracy and completeness of BT's PPC billing have been resolved;
  • BT must reimburse its customers for overpayments made to BT from the date the relevant SMP conditions came into force until 31 December 2007.

BT submits that its payment terms for PPCs, IECs and IBCs are both reasonable and proportionate, for the following reasons: there is little evidence that other communication providers charge in arrears for the products which are the subject of this dispute, either in the UK or across Europe; BT believes that the risk involved should be shared equally between itself and CPs; BT believes that Ofcom made its decision to set a low cost recovery level after taking into account both the structure of PPC prices and the payment terms for PPCs; if there was decrease in working capital, one would expect there to be a requirement to rebalance PPC prices to take account of this.

Ofcom recognises that on the face of the referral, there appears to be a dispute between the parties that commercial negotiations have failed to resolve. Ofcom considers that the dispute relates to the payment terms for PPCs, IECs and IBCs, and in particular, BT's invoicing quarterly in advance, with 30 days to pay from the date of the invoice.

Scope of the dispute:
The scope of the dispute is to determine whether it is fair and reasonable for BT to invoice quarterly in advance, with 30 days to pay from the date of the invoice, for PPCs, IECs and IBCs.

Procedural matters:
Guidance on the resolution of the dispute can be found in Ofcom's Guidelines for the handling of competition complaints, and complaints and disputes about breaches of conditions imposed under the EU Directives.

All representations on the scope of the dispute should be submitted to Ofcom by 21 September 2006.

Stakeholders interested in the outcome of this dispute should notify Ofcom by 5 October 2006, describing the relevance of the outcome of the dispute to their business. Stakeholders with relevant information and evidence in respect of this dispute should submit this to Ofcom by 5 October 2006. Stakeholders who wish Ofcom to join them as parties to the dispute must provide evidence, as set out in Ofcom's Guidelines, that they are in dispute.

Case Leader: Ruth Gibson (e-mail: Ruth.Gibson@ofcom.org.uk)
Case Reference: CW/00916/08/06