Fixed Access Market Reviews: Approach to the VULA margin

This is a draft statement which is being notified to the European Commission for comments.

We set out in draft the obligations we are imposing on British Telecommunications plc (‘BT’) to regulate the margin between BT’s wholesale and retail superfast broadband prices.

Superfast broadband forms a growing part of the overall broadband market and we expect it to become more important, with take-up increasing over the next couple of years. Ensuring that there is effective retail competition in superfast broadband is therefore important to maintaining the UK’s competitive retail broadband market, which benefits consumers.

Communication providers have access to BT’s next generation, superfast broadband network through a wholesale product called Virtual Unbundled Local Access (‘VULA’).

We are concerned that BT could distort the development of competition in superfast broadband by setting an insufficient margin between its wholesale VULA and retail superfast broadband prices. Therefore, this statement sets out detailed requirements on the minimum margin that BT must maintain. Our approach is designed to ensure that other communication providers have sufficient margin to be able to compete with BT in the provision of superfast broadband packages to consumers. It also continues to provide BT with pricing flexibility for VULA that preserves its investment incentives in relation to superfast broadband.

Once this notification process is complete, we will take utmost account of any European Commission comments and then publish a final Statement to bring our decision into effect.

Fixed Access Market Reviews: Approach to the VULA margin - Draft Statement (PDF, 1.9 MB)

Fixed Access Market Reviews: Approach to the VULA margin - Annexes (PDF, 419.7 KB)

This document sets out the obligations we are imposing on British Telecommunications plc (‘BT’) to regulate the margin between BT’s wholesale and retail superfast broadband prices.

Superfast broadband forms a growing part of the overall broadband market and we expect it to become more important, with take-up increasing over the next couple of years. Ensuring that there is effective retail competition in superfast broadband is therefore important to maintaining the UK’s competitive retail broadband market, which benefits consumers.

Communication providers have access to BT’s next generation, superfast broadband network through a wholesale product called Virtual Unbundled Local Access (‘VULA’).

We are concerned that BT could distort the development of competition in superfast broadband by setting an insufficient margin between its wholesale VULA and retail superfast broadband prices. Therefore, this statement sets out detailed requirements on the minimum margin that BT must maintain. Our approach is designed to ensure that other communication providers have sufficient margin to be able to compete with BT in the provision of superfast broadband packages to consumers. It also continues to provide BT with pricing flexibility for VULA that preserves its investment incentives in relation to superfast broadband.

Fixed Access Market Reviews: Approach to the VULA margin - Final Statement (PDF, 2.0 MB)

Fixed Access Market Reviews: Approach to the VULA margin - Annexes to Final Statement  (PDF, 444.9 KB)

EC response to Draft Statement (PDF, 379.7 KB)

BT VULA margin model

Adoption of revised SMP Services Condition and guidance further to paragraph 2 of the Competition Appeal Tribunal’s Directions of 25 July 2016

In March 2015, Ofcom imposed a price control on British Telecommunications plc ("BT") to regulate the margin between BT's wholesale and retail superfast broadband prices (the "VULA margin control").

BT appealed against both the imposition, and design, of the VULA margin control in May 2015. The Competition Appeal Tribunal ("Tribunal") dismissed BT's appeal against the imposition of the VULA margin control in a judgment dated 24 March 2016. Further, in a ruling dated 25 July 2016, the Tribunal dismissed all but one of BT's challenges to the design of the VULA margin control.

The one challenge upheld by the Tribunal in BT's appeal was BT's submission that Ofcom had erred by requiring it to maintain a minimum VULA margin on a month-by-month basis. This document therefore sets out those revisions that Ofcom is making to the VULA margin control and its associated guidance in order to correct the error identified by the Tribunal.

Amendment to the VULA Margin Control (PDF, 175.8 KB)