RegulatoryControlsundertheCommunicationsAct2003

19 December 2003

Richard Eccles

The UK authorities have made significant progress towards finalising the market assessments under the new EC Electronic Communications regime, as implemented by the Communications Act 2003, as from 25th July. The Act creates the Office of Communications (“Ofcom”) as the national regulatory authority, but the actual transfer of powers to it from Oftel will not take place until 29th December 2003. Meanwhile, and until then, Oftel has been acting on behalf of Ofcom under the transitionally-commenced provisions of the act.

Oftel has completed its market assessments for fixed narrowband retail services, fixed narrowband wholesale exchange line, call origination and conveyance markets, geographic call termination markets, mobile access and call origination on mobile networks markets, wholesale and metered narrowband internet termination services and the wholesale international services market. Oftel’s Final Explanatory Statements and Notifications concerning market definition and findings of significant market power (“SMP”) in each of these markets were issued on 28th November 2003. Oftel has also issued a consultation statement (dated 9th September 2003) concerning broadcasting transmition services, reviewing the provision of masts and towers (and other sites) for the purposes of broadcasting transmition services, and a formal Notification and Statement containing Oftel’s (or Ofcom’s) proposals for submission to the European Commission and other NRAs, is now awaited.

Oftel’s application of the new SMP test has resulted in some relaxation of regulatory controls through determinations that markets are now effectively competitive, in particular the following:

· retail business IDD calls markets (category A and B) for the UK as a whole (except for the whole area) are effectively competitive;

· various wholesale international markets, assessed on a route by route basis, are now effectively competitive as neither BT nor Cable & Wireless are considered to have SMP under the new regime;

· wholesale unmetered narrowband internet termination services originating in the UK (except for the Hull area) are now considered to be effectively competitive; and

· mobile access and call origination on the public mobile telephone networks in the UK are now considered to be effectively competitive

Therefore, as regards each of the above fixed network and services markets, regulatory controls are being relaxed as regards BT (and also as regards Cable & Wireless for wholesale international services markets). Likewise, existing regulatory controls in the mobile sector on mmO2 and Vodafone (which had SMP under the old regime) are being relaxed. (This is by means of “Discontinuation Notices” which supersede the Continuation Notices in respect of the licence obligations and regulatory determinations under the old regime which had been maintained in effect pending the outcome of the market assessments).

It should be noted that in relation to mobile call origination markets, whilst the European Commission agreed with Oftel’s conclusions that none of the four operators have SMP, it disagreed with Oftel’s reasoning (Commission press statement IP/03/1203: Commission reviews first case under new electronic communications regime). Contrary to Oftel’s position, the Commission took the view that second generation and third generation voice services form part of the same market, because markets should be defined by reference to the type of service rather than the technological platform on which they are provided. The Commission also criticized Oftel’s measurement of retail market shares by means of wholesale market revenue, because relative price levels at which access and origination is sold to ISPs may differ from the retail price charged by ISPs to end users. However, this would not have affected the outcome of the market assessment.

In various respects, Oftel’s market assessments involved a strengthening of regulatory controls. Most significantly, Oftel has concluded that, in relation to fixed geographic call termination markets, each operator of a fixed public electronic communications network has SMP in respect of a distinct market for fixed call termination on its network. This conclusion applies to each of BT, Kingston Communications (Hull) plc and 52 named network providers listed in an annex to Oftel’s Notification. Under the old regime, only BT and (for the Hull area) Kingston were designated as SMP operators. The new finding applies to all network operators which provide retail services (but not to nine operators who do not). Oftel has imposed SMP conditions on SMP operators requiring them to provide network access (i.e. call termination) to all public communications services providers if reasonably requested to do so, and to set fair and reasonable terms for their call termination services. Further obligations have been imposed on BT and (for the Hull area) on Kingston, to set their charges for call termination services on the basis of relevant forward looking long-run incremental costs. In addition, for BT and (for call termination in the Hull area), Kingston, Oftel has decided that they should publish cost accounting information, maintain separate accounts and a reference offer and give advance notification of changes to their charges. The stronger regulatory approach taken in respect of BT and (in the Hull area) for Kingston results from the fact that they respectively possess SMP in related retail markets.

In relation to fixed narrowband services markets at retail level, BT has SMP in local and national calls markets and in the markets for calls to mobiles and operator assisted calls, in each case for residential and business calls respectively, and also residential IDD calls and the various analogue and digital exchange line services (residential and business). BT will be subject to RPI (retail price index) – based charge controls until 31st July 2006 in respect of these call services markets and most of the exchange line services markets, obligations to publish charges, terms and conditions and to notify changes, and non-discrimination obligations.

In relation to wholesale markets for fixed narrowband exchange line, call origination and conveyance, BT has SMP for call origination, conveyance and transit (tandem conveyance and single transit) and residential and business exchange line services. In these areas, Oftel has imposed the following SMP conditions:

· requirements to provide network access on reasonable request;

· requirement not to unduly discriminate;

· obligations to follow cost orientation in setting charges;

· charge controls under requirement to notify charges;

· requirement to publish a reference offer;

· requirement to notify technical information;

· transparency as to quality of service; and

· requirement to provide carrier pre-selection, indirect access, wholesale NTS call origination and FRIACO.

In relation to wholesale international services markets, the obligations imposed on BT and Cable & Wireless for routes on which they hold SMP are, basically, to provide network access on reasonable request, not to unduly discriminate, to publish a reference offer and to notify prices. In addition, BT is to be subject to a condition requiring it to propose separate accounts for its retail and wholesale businesses.

In relation to broadcasting transmission services, Oftel’s consultation paper of 9th September 2003 indicated that both Crown Castle and ntl were considered to have SMP in the market for access to their respective masts and towers for the provision of analogue and digital terrestrial television broadcasting transmission services. As a result of this Oftel indicated proposed SMP conditions requiring the provision of network access on reasonable request and on fair, reasonable and cost-orientated terms, not unduly to discriminate, and to publish to a reference offer. These proposals are more detailed than current regulations. However, Oftel stated that enabling other communications providers to access the masts and sites of ntl and Crown Castle is intended to incentivise innovation in delivery.

With these market assessments, Oftel has laid the ground for the application of the Communications Act 2003 to UK markets for electronic communications services and networks. Whilst in many respects the new regime is generally more liberal than the old, in relation to geographic call termination on fixed networks, the transposition of the logic used in the previous Oftel and Competition Commission conclusions concerning call termination in mobile telecommunications markets, will result in more extensive controls than existed under the old regime, opening up the possibility of more, rather than less, intervention by Ofcom in this area.


Important - The information in this article is provided subject to the disclaimer. The law may have changed since first publication and the reader is cautioned accordingly.

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