BT faces price cuts and refunds on unbundled products
BT will have to change how much it charges for sub-loop unbundling products and may have to refund money for overcharging, according to a draft determination by the UK’s communications regulator Ofcom.
Ofcom’s heavily redacted draft decision, published on 14 June, relates to a dispute filed by Digital Region Ltd and Thales in February this year after BT’s Openreach subsidiary, which levies the charges, turned down a request to reduce the charges.
The charges have long been a bone of contention between BT and its competitors. The competitors have argued that BT inflated the prices artificially to raise barriers to entry .
Communications minister Ed Vaizey has said he would act on evidence of overcharging by BT.
One other company, whose identity was redacted, joined DLR/Thales in the dispute. Rutland Telecom expressed an interest in the case. It was asked for further information but did not respond, and so was not joined in the case.
DLR is an alternative communications service provider to BT in the south Yorkshire region. It sources the operation of its network services to Thales. It rents some of its physical network, such as the wires between the street cabinet and the customer’s home, from BT.
BT charges “connection fees” of £106.62 and £127.61 respectively where the customer buys both voice and broadband from DLR, or either voice or data from DLR with another provider supplying the other service. BT also charges an annual rent of £93.96 for the connection.
DLR/Thales told Ofcom it estimated the real price of the connection fee should be about £50 in both cases, and that the annual rent should be about £82.35.
DLR/Thales said equivalent prices in New Zealand and the Netherlands were about £50 and £27-28 respectively. However, Ofcom said DLR/Thales had not shown why these prices were relevant in the UK. “We consider that in this case…any international comparison will say very little about BT’s compliance,” it said.
All pricing details have been cut out of Ofcom’s draft determination. This makes it impossible to judge both the financial arguments on both sides and Ofcom’s determination.
This matters because many in the industry believe that BT has “captured” the regulator, a point made by the Guardian newspaper last year.
The parties and any other interested parties have until 5pm on 28 June to submit comments to Ofcom, after which Ofcom will make a final determination.
A BT spokesman said, “We are pleased that DRL/Thales primary claim that the SLU connection charge should be reduced to £50 has not be upheld by the regulator. Ofcom are proposing that BT make some minor adjustments to our SLU charges although we consider these to be unfounded and we will be responding to Ofcom in due course.”
In a separate dispute, Ofcom turned down a complaint by Opal Telecom (part of TalkTalk) and British Sky Broadcasting (Sky) that they had overpaid Openreach for some local loop unbundling products.
The regulator acknowledged that the overpayment was due to it miscalculating the fee in 2009, but said a refund would not benefit customers or the level of competition in the market.
The Competition Commission found that Ofcom had “materially erred” by underestimating how fast Openreach could become more efficient; that its assessment of inflation of wage and energy costs was incorrect; and that it had made “certain errors” specifying price caps ancillary services.
Ofcom admitted these mistakes meant Opal and Sky overpaid Openreach.
“However we also note our view that Openreach complied with the regulatory obligations which Ofcom had set. We consider that legal and regulatory certainty in conditions set by Ofcom is important,” Ofcom said.
“We acknowledge that the sums sought by Opal and Sky are not in themselves insignificant, but we also consider that in the context of the overall value of the services provided, any harm to competition that arose during the relevant period was limited, and it is not clear that any retrospective repayment now would remove any alleged competition distortion or economic inefficiency.
“If we were satisfied that a repayment was likely to have a positive effect on consumers or competition, either directly or indirectly, this could alter the balance of relevant factors in favour of ordering a repayment. However, we note in this regard our view that, in the circumstances of these disputes, a repayment would be unlikely to have a significant impact (positive or negative) on competition or consumers.”
The parties have until 29 June to reply.