Ofcom publishes draft decisions following fixed narrowband market review

22 Aug 2013

UK telecoms regulator Ofcom has notified the European Commission (EC) of its draft decisions following a review of the country’s fixed narrowband market in which it examined the retail and wholesale markets for voice calls.

Having initially called for submissions from interested parties on the matter in May 2012, the regulator published a consultation document in September that year on possible approaches to cost modelling for the Network Charge Control for the period 2013-2016. February 2013 then saw another consultation launched in which Ofcom set out our proposals on market definition, significant market power (SMP) and remedies to address its proposed SMP findings.

In outlining its draft decision the watchdog said that the fixed voice retail calls markets in the UK, excluding the Hull area, ‘remain effectively competitive, as no company holds a position of SMP’. In the Hull area meanwhile Ofcom said that, although KCOM Group’s market share remains high both in retail residential and retail business fixed calls, it considers that ‘ex post competition law is sufficient to address any competition concerns at the retail level’. As such, the regulator confirmed plans to remove all remaining ex ante regulation in the relevant markets at the retail level.

However, fixed line incumbent BT has been marked as holding SMP in the provision of wholesale call origination in the UK (excluding the Hull Area), to which end Ofcom is proposing to impose access and non-discrimination remedies, including charge controls, although it has said it will remove BT’s obligation to offer carrier pre-selection (CPS) and indirect access (IA) where the telco’s retail arm provides the retail access line. In the Hull area, the draft decision cites KCOM as holding SMP in the provision of wholesale call origination, a situation which has prompted Ofcom to impose ‘a requirement to provide network access on fair and reasonable terms’; the regulator has, however, said that it does not consider a charge control to be necessary in this instance. Similarly to BT, KCOM’s obligation to offer CPS and IA where its retail arm provides the retail access line is to be removed.

In setting charge controls for wholesale call origination and termination, Ofcom said it had estimated the forward-looking cost of providing wholesale services based on a Next Generation Network (NGN) model using the internet protocol (IP). The charge controls for the provision of wholesale call termination, meanwhile, will be based on long run incremental costs (LRIC) of providing the service from 1 January 2014. Such an approach, the watchdog has said, will lead to fixed termination rates (FTRs) falling from an average of GBP0.00219 (USD0.0034) per minute in 2012/13 (in 2012/13 prices) to GBP0.034 by 1 January 2014 (in 2012/13 prices). A reduction in the maximum permitted FTR will reportedly be achieved via a charge control to limit rates for BT, and a control for other designated communication providers to offer fixed call termination at a fair and reasonable rate. In relation to wholesale call origination Ofcom has concluded that charge controls should be based on LRIC plus an appropriate mark up for common costs. This approach, it claims, will lead to wholesale call origination rates increasing from an average of GBP0.00245 per minute in 2012/13 (in 2012/13 prices) to GBP0.00400ppm by 1 January 2014 (in 2012/13 prices), before falling to GBP0.372 (in 2012/13 prices) in the final year of the charge control (2015/2016).

United Kingdom, BT Group (incl. Openreach), KCOM, Ofcom