Last week Ofcom published a series of regulatory statements related to the UK fixed-line telecoms market. All convey a favorable outcome for BT and in some cases a welcome reduced regulatory burden. On the whole, consumers can expect further competitive forces to deliver more benefits. There may be further good news to come for the incumbent as Ofcom is about to embark on a review of the treatment of pensions.
A generally positive development for consumers, but Ofcom must be vigilant.
After four years and more than 6 million unbundled lines, Ofcom has concluded that the fixed retail markets in the UK (excluding Hull) are now competitive. For the majority of consumers this relaxation of the rules in the retail markets will come as welcome news. For the first time, BT Retail will be able to compete more freely in the supply of bundles of services which combine fixed telephony with other telecommunications services such as mobile, broadband and television.
Elsewhere in the EU the majority of retail markets remain subject to at least some ex ante regulation, as they have not yet shown signs of effective competition. All eyes will now be on the UK and how it arrived at this position. Certainly the decision to create Openreach and the effect this has had on competition in the market will be one focus point. However, Ofcom must not be complacent. While it has a principal duty to take the least intrusive regulatory approach and remove regulatory obligations when competition develops, it also has obligations to look after the consumer interest and must be mindful of the potential for mis-selling that bundling implies, and the implications for when consumers want to switch providers.
Inherently as we move from an ex ante to ex post regulatory environment we become more reliant on competition law. At the moment the EU has itself an effective competition commissioner in the form of Neelie Kroes, who has famously shown she is not afraid to flex her muscle when needed. But dealing ex post with abuses of dominance must also be on the agenda of the national regulators and they must ensure they have the necessary resources to monitor and police any potential anti-competitive behavior.
The second regulatory statement concerns BT’s network charge controls – that is, the fees paid by other fixed-line communications providers to use BT’s network. For the first time since the price controls were introduced in 1997, Ofcom is permitting BT to raise the wholesale fees on the grounds that BT is currently not able to fully recover the costs of providing the interconnect services.
This is mainly due to a reduction in the volume of calls being terminated in the fixed network over the life of the current network charge controls. However, the situation is further complicated by the fact that BT has announced plans to extend the life of its PSTN for voice services as it delays the upgrade of its core network. While this is good news for BT, the effects may be felt more widely and could conversely give some (albeit limited) reassurance to mobile operators.
In the European Commission’s recent Recommendation on the regulatory treatment of termination rates, Commissioner Reding called for a reduction in mobile termination rates so that they are more aligned with terminating a call in the fixed network. If the situation in the UK is the start of a more widespread trend in Europe then the gap between fixed and mobile could narrow without the need for such drastic cuts in mobile termination rates.
In addition to this reduced regulatory burden, this autumn Ofcom is set to decide whether to allow BT to include the cost of pensions when calculating the fees it charges firms to rent its network. If Ofcom says yes, some of BT’s legacy pension costs could be passed on to consumers.
Ofwat, the regulator for the UK’s water industry, has already made this move and so with the precedent set the expectation is for telecoms to follow suit. If some cost could be recovered this way then arguably BT’s prospects will improve substantially.