On the 9th July, the UK Supreme Court (SC) handed down a judgment on the long-running dispute between BT and the four mobile network operators (MNOs) on termination charges on BT’s network for calls to non-geographical 08 numbers. This leading case has major ramifications for the ability of Ofcom to intervene when resolving disputes where no party has significant market power.
BT had appealed Ofcom’s decisions to block ‘ladder pricing’ for 08 calls, in which the wholesale price that an MNO paid for termination depended on the retail price it set, creating incentives for MNOs to moderate retail prices. Ofcom objected primarily on the grounds that benefits for consumers were uncertain, even though it judged the risk of a material distortion of competition to be “relatively low”.
The Competition Appeals Tribunal (CAT) overturned this decision. The CAT found that BT was within its contractual rights to introduce such innovative pricing structures, with such innovation itself being a dimension of competition. The CAT agreed with Ofcom that the welfare effect was uncertain, but considered that this was not the correct test, as pricing innovation should only be prevented were there is a clear demonstration of disadvantage to customers.
The CAT’s decision was appealed, with the Court of Appeal (CoA) finding that the CAT was wrong to consider that BT has a prima facie right to make such a change to its pricing. The CoA considered that the CAT had placed too much weight on the possibility that constraining the form of BT’s wholesale charges could limit competition. The CoA also found that the CAT was wrong to attach weight to BT not having significant market power in any affected market, considering that “dispute resulution is a form of regulation in its own right”.
The Supreme Court has now struck down the CoA’s judgment, re-instating the original CAT finding in favour of allowing ladder pricing. It found that, whilst absence of SMP does not make competition matters irrelevent, in a dispute about prices under an existing contract, Ofcom may not exercsie its regulatory power to control prices. The SC agreed with the CAT that the right to introduce a tariff innovation was BT’s; the prohibition of such an innovation could itself be anti-competitive and this had not been taken into account by Ofcom.
Dr Dan Maldoom of DotEcon provided extensive expert testimony on behalf of BT at the CAT.