Competition Commission finds Ofcom did not err in adopting pure LRIC cost standard for mobile call termination

On 14 February 2012, the Competition Appeal Tribunal (CAT) published the Competition Commission’s (CC) determination on price control matters in the appeals brought by British Telecommunications plc (BT), Vodafone Ltd, Hutchinson 3G UK Limited and Everything Everywhere Ltd against Ofcom’s 2011 decision on the wholesale mobile call termination rates (MTRs) charge control.

Ofcom’s decision included a control on MTRs set by the four national mobile operators based on a pure LRIC cost standard. This decision was in line with recommendations made by the European Commission. It also proposed a four-year glide path (from April 2011 to March 2015) for the reduction in MTRs to pure LRIC levels.

Vodafone and Everything Everywhere, supported by Telefónica O2, appealed Ofcom’s decision, challenging the pure LRIC methodology. In particular, they contended that the LRIC plus cost standard, used in previous charge controls, would have better served Ofcom’s regulatory objectives. The parties also raised issues with some of the assumptions used in Ofcom’s model.

BT supported Ofcom’s decision to adopt the pure LRIC cost methodology, but appealed other aspects of the decision such as that to adopt a four-year glide path (contending that the speed of adjustment to pure LRIC should have been faster, with a three-year glide path). DotEcon provided expert economic analysis in support of BT, in particular providing an Expert Report on the effect of the charge control on mobile ownership and ‘vulnerable’ customers.

On 30 June 2011, the CAT made a reference to the CC with respect to the challenges put forward by the appellants. After reviewing the arguments made, the CC set out in its determination that it does not consider that Ofcom erred in its decision to use the pure LRIC cost standard. In particular, the CC is of the view that whilst some vulnerable customers are likely to be made worse off, the appellants had not demonstrated that this would lead to a significant reduction in subscriptions or usage amongst the group. Nor had they demonstrated that the net effect across all vulnerable customers, taking into account both winners and losers, would be significant. Furthermore, the CC calls for a faster reduction in MTRs to the pure LRIC level, using a three-year glide path (one of the grounds on which BT had appealed), as opposed to the four-year glide path proposed by Ofcom.

More information about the appeal can be found here.

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