On June 19 2014, Ofcom made two announcement that will shape the competitive landscape in superfast broadband. In the first announcement, Ofcom have provisionally dismissed a complaint by TalkTalk against BT, first made in March 2013. BT provide the hardware for access to superfast broadband, both to itself and to rival operators such as TalkTalk.
TalkTalk alleged that BT were guilty of abusing their dominant position under Article 102 TFEU by failing to maintain a sufficient margin between their upstream and downstream prices, thereby operating a margin squeeze. It alleged therefore that BT were selling their own superfast broadband to consumers at a price their rivals were unable to match because of the price their rivals had to buy wholesale access from BT.
Ofcom’s announcement gave no reasoning behind their decision other than somewhat strangely linking it to their second announcement, that of new requirements on BT to promote competition in superfast broadband, before declaring that the two decisions were independent.
If readers ignore this slightly unbelievable assertion, it appears that Ofcom are satisfied that BT were not abusing their dominance in providing access to superfast broadband or at least not at a level that couldn’t be addressed through the competitive measures put forward.
Under the proposals, BT must ensure that the margin between its own consumer broadband and the wholesale price is sufficient for rival operators to make a profit. Therefore it must essentially either charge rivals less on wholesale so that they can offer their consumers a package at a competitive price, or, BT must raise the price of its consumer broadband to a level closer to its rivals to allow their rivals to seem competitive.
Furthermore, the new rules would take into account free services offered by BT alongside the broadband such as the sport channels which are currently given free. This avoids the situation where BT state they are on a level playing field on wholesale and consumer prices whilst unfairly enticing consumers with add on packages at a level where again the competition is disadvantaged.
The proposals covers the period 2014-2017 which Ofcom believes will be a crucial period when many households switch to superfast services. The City responded well to the package believing that BT had not been overly burdened and shares in BT rose on the news. TalkTalk mean whilst indicated that they hope the current proposed measures will lead to full superfast regulation from 2017 onwards.
This is a strange juxtaposition of announcements by Ofcom. On the one hand it is rejecting use of its competition powers and yet simultaneously using its ex ante regulatory powers to impose a solution.
Given Ofcom’s express requirement to give consideration to the use of their competition powers first and foremost rather than their ex ante regulatory powers under Schedule 14 of Enterprise and Regulatory Reform Act 2013, the outcome of this case appears to fly in the face of the Government’s new concurrency rules of engagement. Perhaps the morale of this story is and always will be that concurrent regulators feel happier and more certain using their ex ante powers and will seldom take on the burden of advancing a competition case which is more legally onerous to prove.
The consultation on these provisional measures closes on the 24 August 2014.