Controlling the elephant: Ofcom chooses competition law
01 July 2005
On 23 June Ofcom published details of what it calls a new
regulatory approach for the UK’s fixed line telecommunications
market. Instead of relying on the new regulatory framework under
the Electronic Communications Directives of 2002, which were
implemented in the UK by the Communications Act 2003, Ofcom has
relied on the Enterprise Act to address what it sees as the core
problem in the UK’s telecommunications market.
The outcome of Ofcom’s strategic review of telecommunications is
that it sees the core problem as being in the fixed line market and
that years of intrusive regulation have not created the conditions
for sustainable competition. It is now looking to encourage
infrastructure competition but some bottleneck assets cannot be
sensibly replicated by competitors and, without access to these
assets, sustainable infrastructure-based competition is not going
to happen. Ofcom is therefore tackling what it has in the past
called the elephant in the corner of the room by seeking to secure
equality of access to these assets by requiring operational
separation of BT’s access network and by mandating a principle of
equivalence, so that all comers, including BT’s retail business,
have equal access to it.
The details remain to be fully disclosed when BT’s proposed
undertakings are published in full on 30 June but the broad scheme
is to include within a new BT Access Services Division most of its
access infrastructure facilities including the copper local loop,
local exchanges and associated ducts and other civil
infrastructure. It will be responsible for delivering wholesale
access products on an equal basis to both BT and its competitors,
including WLR, LLU, fibre access products, PPCs and related
backhaul services. The timescale for implementation and the details
are in some respects unsettling from the point of view of speed
(not very fast) and clarity (it looks as though some product
management teams may not move to the new division but would be paid
as if they were) but fuller details should be available at the end
of this month.
There are some related developments including an announcement by
BT that its IP Stream prices are to remain stable for “up to” two
years (whatever that means) to give LLU operators confidence about
the threat of unpredictable margin erosion, which is perceived to
be one of the key obstacles to the development of LLU.
The devil remains in the detail for the time being but the main
thrust of the announcement is that Ofcom aims vigorously to
encourage infrastructure-based competition, particularly local loop
unbundling, which so far has faltered within the UK market.
What is particularly interesting is that Ofcom’s new approach is
based on its powers as a competition authority (it shares
concurrent powers with the OFT) and not as a national regulatory
authority under the new regulatory framework. Enormous resources
have been deployed in the development of the new framework at the
European level and on its national implementation throughout the
EU. In the UK, we have had the Communications Act and Ofcom’s
analyses of the various markets in seeking to identify significant
market power and to apply remedies. But the remedies that Ofcom is
proposing to apply here are not those under the Directives, with
their carefully harmonised rules about the imposition of ex ante
regulatory obligations. Instead, Ofcom is relegating the new
framework to a secondary role on the basis that national
competition law remedies are sufficient to address the problem.
Ofcom is invoking its powers under the Enterprise Act to obtain
undertakings from BT to give effect to the operational separation
of the Access Services Division and the provision of wholesale
products on an equal basis to all.
In doing so, Ofcom has spoken of the UK having been one of the
first countries in the world to liberalise its telecoms market but,
its lead having slipped in recent years, these proposals are
intended to put the UK back in the forefront in developing radical
telecommunication policy –which appears from the statement to be a
policy which, if not quite abandoning the new regulatory framework
almost before it has come into effect, finds no significant role
for it in addressing what it sees as the core problem in the UK
telecoms market. It may be radical to attempt operational
separation of part of BT’s business but it is also radical to
choose to do so using the tools of general competition law instead
of sector specific regulation.
Perhaps that is what the new regulatory framework was designed
to foster anyway and Ofcom has seen its opportunity to leap ahead
of the game. One wonders, however, what useful purpose the
framework has served if, in practice, it has not provided the tools
to deal with the elephant in the corner.
For further information, please contact Nick Pimlott.