Dispute relating to the “Oftel Interest Rate” contained within BT’s Standard Interconnect Agreement (“SIA”).

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Dispute between: (i) Gamma Telecom Holdings Limited (“Gamma”) and (ii) British Telecommunications plc (BT) concerning BT's SIA.
Case opened: 12 July 2013.
Case closed: 25 October 2013
Issue: Ofcom was asked to resolve this dispute under section 185 of the Communications Act 2003 (the Act).
Relevant instrument: Ofcom resolved this dispute using its powers under Chapter 3 of Part 2 of the Act.

On 25 October 2013, Ofcom issued a final determination resolving this dispute. A non-confidential version of the determination is available under related items.

Update note – 17 September 2013

On 17 September 2013, Ofcom published its provisional conclusions concerning this dispute to BT and Gamma (please see related item).

The period for comments on the provisional conclusions will close at 5 pm on Monday 30 September 2013. Please send responses to:

Francesco Savino
Ofcom
Riverside House
2A Southwark Bridge Road
London
SE1 9HA

Or by e-mail to francesco.savino@ofcom.org.uk

End of update note

BT’s SIA provides the terms and conditions on which narrowband services are connected between the respective networks of BT and other communications providers, including Gamma. This dispute concerns paragraphs 12.7 and 13.13 which provide for a party to recover interest on repayments that are required in the event that a charge is recalculated or adjusted with retrospective effect.

The SIA provides that interest payable in these circumstances is payable at what is referred to as the Oftel Interest Rate, which is defined as three eighths of one per cent (3/8%) above the three month London Interbank Offered Rate (LIBOR).

Gamma considers that the level of interest provided for by the Oftel Interest Rate is not fit for purpose as it does not ensure that the parties are returned to a neutral position on repayment and that a more appropriate interest rate would be one that is more reflective of BT’s cost of debt. BT considers that any interest rate should be based upon short-term cost of borrowing which is reflected in the Oftel Interest Rate.

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. In resolving disputes, Ofcom must act in a manner which is consistent with both Ofcom’s general duties under section 3 of the Act, and pursuant to section 4(1)(c) of the Act, the six Community requirements set out in section 4 of the Act which give effect, amongst other things, to Article 8 of the Framework Directive.

In summary, those requirements are:

• to promote competition in communications markets;
• to secure that Ofcom contributes to development of the European internal market;
• to promote the interests of all European Union citizens;
• to act in a manner which, so far as practicable, is technology-neutral;
• to encourage, to the extent Ofcom considers it appropriate, the provision of network access and service interoperability; and
• to encourage such compliance with certain international standards as is necessary for facilitating service interoperability and securing freedom of choice for the customers of communications providers.

Ofcom considers that there is a dispute between the parties within the meaning of section 185(1)(a) of the Act. Ofcom considers that the dispute meets the relevant statutory criteria and it is appropriate for Ofcom to handle it according to section 186 of the Act, and accordingly, Ofcom has accepted the dispute for resolution.

Scope of the dispute:

After consideration of the submissions received from Gamma and BT, and in particular in light of representations that the dispute focuses only on the application of the Oftel Interest Rate in circumstances where Ofcom makes a direction, for example under section 190(2)(d) of the Act, which results in an adjustment to or redetermination of charges, and that these are the circumstances in which the Oftel Interest Rate has previously been applied in practice, the scope of the dispute is to determine:

(i) the basis on which interest is or should be payable by the parties where Ofcom has directed one or other of them to make a payment to the other party as a consequence of a recalculation or redetermination of charges payable under BT’s Standard Interconnect Agreement;
(ii) if appropriate, the level of interest which should be payable in those circumstances; and
(iii) in light of Ofcom’s conclusions on those questions, any appropriate exercise by Ofcom of its powers under section 190(2) of the Communications Act 2003.

Procedural matters:

In line with Ofcom’s Guidance on the resolution of disputes published in June 2011, Ofcom is not consulting on the scope of this dispute. Ofcom’s guidelines can be found at: Ofcom's Guidelines for the handling of regulatory disputes

Stakeholders interested in the outcome of this dispute should notify Ofcom by 31 July 2013, describing the relevance of the outcome of this dispute to their business. Stakeholders with relevant information and evidence in respect of this dispute should submit this to Ofcom by 31 July 2013.

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: Francesco Savino (email: francesco.savino@ofcom.org.uk)
Case Reference: CW/01108/06/13