- The Office of Communications (Ofcom) has decided to consult on whether it should accept undertakings which have been offered by British Telecommunications plc (‘BT’) in lieu of a reference to the Competition Commission under Part 4 of the Enterprise Act 2002.
- BT’s offer of these undertakings in lieu of a reference, and Ofcom’s decision to consult on accepting them, follow Ofcom’s consideration of the current state of fixed telecoms in the UK in its Strategic Review of Telecommunications (‘the Telecoms Review’). (-1-)
- A core conclusion of the Telecoms Review has been that effective competition remains the best means to deliver benefits to businesses and consumers in relation to telecoms. In particular, businesses and consumers value and are increasingly benefiting from the plethora of innovative new services being brought to market. Our analysis showed that competition based upon deployment of alternative infrastructure is the best mechanism to deliver not only wider choice, better quality and lower prices, but also faster innovation and availability of new services. There are important caveats to this approach, such as the need for informed consumers able to make effective choices, and the need to ensure delivery of services to vulnerable groups and isolated communities. However, the clear conclusion remains that the best way to further the aggregate interests of businesses and consumers in the UK is to promote effective competition in telecommunications. (-2-)
- Ofcom suspects that competition is being restricted in markets for the supply of wholesale access and backhaul network services in the context of electronic communications in the United Kingdom (‘the wholesale markets identified’) and on directly related downstream retail markets (‘the retail markets identified’). In the wholesale markets identified, BT has and will continue to have a substantial degree of market power. BT is also a vertically integrated provider with a presence in the directly related downstream markets. Ofcom believes that the combination of these features (upstream market power and vertical integration) provides BT with both the ability and the incentive to discriminate against its downstream competitors, who are also its wholesale customers. Moreover, Ofcom suspects that BT may have engaged in conduct which has had the effect of restricting competition.
- Section 370 of the Communications Act 2003 gives Ofcom concurrent functions with the OFT under Part 4 of the Enterprise Act 2002.
- Under section 131 of the Enterprise Act 2002, Ofcom may make a market investigation reference to the Competition Commission where it has reasonable grounds for suspecting that any feature, or combination of features, of a market in the UK for goods or services prevents, restricts or distorts competition in connection with the supply or acquisition of any goods or services in the UK or a part of the UK.
- Under section 154 of that Act, instead of making such a reference, but where it has the power to make one and otherwise intends to do so, Ofcom may accept undertakings from such persons as it considers appropriate, to take such action as it considers appropriate. These undertakings must be for the purpose of remedying, mitigating or preventing any adverse effect on competition concerned, or any detrimental effect on customers so far as it has resulted from, or may be expected to result from, the adverse effect on competition.
- Ofcom believes that the test for a reference set out in section 131 of the Enterprise Act 2002 is satisfied and intends, if it does not accept undertakings, to make such a reference. The terms of the reference which Ofcom would make are set out in Annex A.
- However, Ofcom considers that the package of undertakings offered by BT is appropriate to address the difficulties which it has identified, and offers as comprehensive a solution as is reasonable and practicable.
- In the light of sections 155 and 169 of the Enterprise Act 2002, Ofcom hereby gives notice of the undertakings which it proposes to accept from BT, subject to comments and representations received as to the effectiveness of the undertakings. In this notice, Ofcom sets out the reasons for which it proposes to accept those undertakings. Ofcom invites written views and comments on the issues raised in this document to be made by 12 August 2005. Further details of how to respond are set out in Annex B.
1.-Ofcom has so far published two consultation documents as part of its Strategic Review of Telecommunications. The phase 1 consultation, published on 28 April 2004 , considered the current position and prospects for the telecoms sector (available at www.ofcom.org.uk/static/telecoms_review/condoc_phase1.htm). The phase 2 consultation, published on 18 November 2004, (available at www.ofcom.org.uk/static/telecoms_review/condoc_phase2.htm), identified and assessed options for Ofcom’s strategic approach to telecoms markets, and specifically discussed the possibility of utilising Ofcom’s powers under Part 4 of the Enterprise Act 2002.
2.-In general, when exercising its functions, Ofcom is required under the Communications Act 2003 to further the interests of consumers in relevant markets, where appropriate by promoting competition. While those duties do not apply when Ofcom carries out its functions under Part 4 of the Enterprise Act 2002, it may have regard to such matters if they are matters to which the OFT is entitled to have regard. Footnote
A full version of this document and a copy of the Annexes are available via the links below.