DotEcon supports BT in its appeal of Ofcom’s Business Connectivity Market Review Statement

July 2016

On 28 June 2016 BT lodged an appeal with the Competition Appeal Tribunal (CAT) against the determinations made by Ofcom in its “Business Connectivity Market Review – Review of competition in the provision of leased lines”, in which Ofcom:

  • argued that there was a single product market for Contemporary Interface Symmetric Broadband Origination (CISBO) services, and three geographic markets including the Central London Area (CLA), London Periphery (LP) and the Rest of the UK excluding Hull (RoUK);
  • found that BT has significant market power for CISBO services in the LP and the RoUK; and
  • proposed to impose both active and passive remedies on BT, including the provision of dark fibre access (DFA) at a regulated price specified in the Leased Line Charge Control.

BT has appealed Ofcom’s Determination on the following four grounds:

  1. “OFCOM was wrong as a matter of fact and/or assessment to define a single CISBO market. Instead, OFCOM should have defined separate lower bandwidth (i.e. for services up to and including 1 Gbit/s) and very high bandwidth product markets (i.e. for services over 1 Gbit/s).
  2. OFCOM erred as a matter of fact and/or assessment in its geographic market definition. OFCOM applied a ‘boundary test’ in defining the geographic markets. OFCOM erred in treating the satisfaction of the test as a necessary – not merely sufficient – condition for a finding of effective competition. BT also contends that OFCOM erred in several respects in its application of the boundary test. In particular, the test was subject to overly stringent conditions.
  3. OFCOM erred in its assessment of the extent of the competitive core network. BT contends that there is a high risk that OFCOM has materially understated the extent of core conveyance exchanges and, therefore, retained unnecessary regulation for a number of competitive connections.
  4. OFCOM erred in making its decision to impose the DFA remedy for the following reasons:
    1. the remedy is flawed and disproportionate because it targets only the most competitive segment of the market;
    2. no account was taken of the impact of Directive 2014/61/EU (“the Civil Infrastructure Directive”) and, in particular, no consideration was given to the extent to which the claimed benefits of the DFA remedy would be achieved in any event following the implementation of the Civil Infrastructure Directive with effect from July 2016; and
    3. the cost-benefit analysis of the DFA remedy was flawed. In particular, OFCOM: (i) overstated the benefits of dark fibre; (ii) understated the risks of dark fibre; (iii) adopted an inconsistent approach to the timeframes for assessment of benefits and risks; (iv) failed to take into account the difficulty and costs of reversing the DFA remedy once implemented; and (v) failed to undertake a proper balancing exercise of the benefits and risks of the DFA remedy.”[1]

Dr Dan Maldoom, co-founding Partner of DotEcon, provided an expert report in support of BT’s appeal. Dr Maldoom’s expert report, submitted to the CAT, considers economic matters relating to Ofcom’s Final Determination, and in particular in support of Ground 4 on the economic aspects of the decision to impose the DFA remedy and Ofcom’s cost-benefit analysis.

 

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