Investigation into WLR business ISDN2 pricing

25 February 2005

Complainant: Ofcom own-initiative investigation
Investigation against: BT Wholesale
Case opened: 19 December 2003
Case closed: 17 June 2004
Issue: WLR business ISDN2 pricing
Relevant instrument: Notification, and Schedule 1 thereto, pursuant to sections 48(1) and 79 of the Communications Act 2003 (the "Act"), as set out in Annex A to Oftel's market review document entitled "Review of the fixed narrowband wholesale exchange line, call origination, conveyance and transit markets Identification and analysis of markets, determination of market power and the setting of SMP conditions - Final Explanatory Statement and Notification".

On 28 November 2003, the Director General of Telecommunications (the "Director") published his findings in the above-mentioned market review. The Director concluded that BT has SMP in inter alia the wholesale business ISDN2 exchange line services market.

As a result of this SMP finding, the Director imposed certain SMP services conditions upon BT including a requirement that its charges for the provision of Wholesale Business ISDN2 Line Rental shall be based on the forward looking long-run incremental costs of providing such services.

On 19 December 2003, Oftel decided to undertake an own-initiative investigation into the current price charged by BT for its wholesale business ISDN2 exchange line services. In addition, Oftel decided that the investigation should consider whether it is necessary to subject BT's price for wholesale business ISDN2 exchange line services to an RPI-charge control and, if so, how the imposition of such a charge control should be effected.

On 17 June 2004, BT announced that it was reducing the price of its Wholesale Business ISDN2 Line Rental from £71.88 per quarter to £55.00 per quarter with effect from 1 October 2004 (the "Reduced Charge").

In the course of its investigation, Ofcom identified two key areas of difficulty in calculating the cost of wholesale business ISDN2 line rental:

(a) The cost of the copper loop

Ofcom identified a number of important issues associated with the costs of BT's copper loop which affect all of the services that are provided over the copper loop (ISDN2, PSTN, LLU, xDSL, leased line terminating segments). Ofcom has initiated a policy project to review these issues in more detail which is to be completed by the end of 2004.

(b) Actual take-up of wholesale ISDN2 by service providers

The appropriate charge for ISDN2 will also be influenced by the take-up of wholesale ISDN2 by service providers. This is because certain wholesale selling costs are recovered over a forecast number of future wholesale ISDN2 lines. Any major differences between actual and forecast numbers may require a change in price to ensure appropriate cost recovery.

Ofcom accepts that given the areas of uncertainty discussed above, the Reduced Charge is appropriate as an interim arrangement and is likely to represent a reasonable cost oriented charge. Ofcom expects to consider the charges again in the first half of 2005, when there will be more information about ISDN2 volumes and when it has completed the project to review the costs of the copper local loop. Ofcom is therefore closing this investigation.

As a result of the Reduced Charge, Ofcom has also decided not to exercise its powers at this time to modify SMP Condition AA4 to subject BT's charge for wholesale business ISDN2 exchange line services to an RPI- charge control. Ofcom may revise this decision following the resolution of (a) and (b) above.

Case Leader: Hugh Kelly (e-mail: Hugh.Kelly@ofcom.org.uk)
Case Reference: CW/00720/11/03

Text published when the case was opened

Investigation into WLR business ISDN2 pricing

Complainant: Oftel own-initiative investigation
Investigation against: BT Wholesale
Case opened: 19 December 2003
Issue: WLR business ISDN2 pricing
Relevant instrument: Oftel's review of the fixed narrowband wholesale exchange line, call origination, conveyance and transit markets document which imposes certain SMP conditions (under Sections 48(1) and 79 of the Communications Act 2003) upon BT.

On 28 November 2003, Oftel published its review of the fixed narrowband wholesale exchange line, call origination, conveyance and transit markets. The review concluded that BT has SMP in the wholesale business ISDN2 exchange line services market.

As a result of this SMP finding, the Director imposed certain conditions upon BT including a requirement that its charges for the provision of WLR business ISDN2 services shall be based on the forward looking long-run incremental costs of providing such services.

Oftel has decided to undertake an own initiative investigation into the current price charged by BT for its WLR business ISDN2 services.

The investigation shall also consider whether it is necessary to subject BT's price for WLR business ISDN2 services to an RPI- charge control and, if so, how the imposition of such a charge control should be effected.

Case Leader: Hugh Kelly (e-mail: Hugh.Kelly@ofcom.org.uk)
Case Reference: CW/00720/11/03