Retail Bundling in Hull

This statement sets out our decision to allow KC, part of the KCOM Group PLC, (KCOM) to bundle broadband, landline and other services for customers in the Hull area in a way that is similar to packages offered by the other Communication Providers throughout the UK. It follows from our consultation Retail Bundling in Hull (the Consultation), published on 5 August 2010.

In the review of the retail narrowband telephony markets of 15 September 2009 we concluded that in the Hull area KCOM retained Significant Market Power (SMP) in all retail narrowband markets and existing wholesale and retail regulations were retained, including the requirement that retail services were offered with no undue discrimination. We noted, however, that as a consequence of our interpretation of the no undue discrimination rule, there was a continuing restriction on the bundling of retail services in the Hull area which appeared to impact disproportionately on the choices available to Hull consumers.

The Consultation sought views on a framework which would allow KCOM to bundle SMP and non-SMP services at the retail level while remaining subject to certain safeguards to ensure that the change did not unduly impact on the incentives for other communications companies to offer retail services in Hull in the future. In particular we proposed that such bundles should be allowed provided that:

• they are made available to all residents and businesses in the Hull area;
• the prices of the bundles are published on KCOMs website; and
• prices are set in a way that would not discourage other communications providers from offering services to consumers in Hull, should they wish to do so in the future.

We received a number of positive responses from individual consumers to the Consultation, highlighting the consumer demand for such changes. However, it was clear from both the consumer and corporate responses that there remain serious concerns about the state of competition in the retail narrowband market in Hull.

While we share the desire of consumers and companies to improve retail competition in Hull, we consider that the existing restrictions on KCOM bundling have a negative impact on consumer welfare. We consider that the proposed framework for the development of bundled services and prices will allow greater consumer choice while avoiding foreclosure of future competitive entry. In addition we are consulting separately on enhancements to the processes involved in securing wholesale access to KCOM assets which we consider will support future competition.

We therefore confirm that KCOM bundles which conform to the specific conditions set out in this statement should not be considered to be in breach of the ex ante no undue discrimination condition imposed on KCOM in 2009, while obviously KCOMs prices and commercial practices in the retail narrowband market in Hull will remain subject to ex post competition law as KCOM has SMP in this market. This will allow Hull residents to benefit from price reductions and service innovations that can be provided through the bundling of retail services.