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Significant market power is defined by Article 14.2 of the Framework Directive: 2. STA |
An undertaking shall be deemed to have significant market power if, either individually or jointly with others, it enjoys a position equivalent to dominance, that is to say a position of economic strength affording it the power to behave to an appreciable extent independently of competitors, customers and ultimately co... |
BT has not been designated as having significant market power in the market relevant to this case, and the present appeal has nothing to do with Articles 9 to 13 of the Access Directive, which are relevant only by way of background. STA |
The scheme of the Directives has been considered on a number of occasions by the Court of Justice of the European Union, notably in Case C-227/07 Commission of the European Communities v Republic of Poland [2008] ECR I-8403 and Case C-192/08 TeliaSonera Finland Oyj [2009] ECR I-10717. Ratio |
It can fairly be summarised as follows. Ratio |
The objectives of the scheme are set out in Article 8 of the Framework Directive, and in particular in Article 8.2, which assumes that consumer welfare will generally be achieved by competition and requires national regulatory authorities to promote both. Ratio |
The telecommunications sector is assumed to have become competitive except in those cases where a CP can be identified as having significant market power in a relevant market. Ratio |
In a competitive market, the objectives in Article 8 of the Framework Directive are to be achieved through the terms of the interconnection agreements between CPs. Ratio |
CPs operating in such a market are left to negotiate their own interconnection terms in good faith, with the minimum of regulatory interference. Ratio |
But they are required by Article 4.1 of the Access Directive to offer interconnection terms consistent with the obligations imposed by the national regulatory authority pursuant to Articles 5, 6, 7 and 8. Ratio |
Under Article 5.4 of the Access Directive, these obligations of the regulator include its obligation to secure the policy objectives in Article 8 of the Framework Directive. Ratio |
The result is that interconnection terms consistent with the objectives in Article 8 of the Framework Directive must be available to any CP which asks for them. Ratio |
Reserve powers are required to be conferred on national regulatory authorities by Article 5 of the Access Directive to impose objective, transparent, proportionate and non-discriminatory terms calculated to achieve the objectives in Article 8 of the Framework Directive. Ratio |
In summary, these powers are exercisable where it is necessary to do so in order (i) to achieve end-to-end connectivity in a case where the parties have failed to agree interconnection terms (Articles 5.1 and 5.4 of the Access Directive); or (ii) to achieve the objectives in Article 8 of the Framework Directive, in a c... |
It should be noted that the promotion of efficient and competitive markets is one of the overarching objectives in Article 8.2 of the Framework Directive, and is therefore potentially relevant in all three cases. Ratio |
Although price control may not be imposed by regulation on CPs without significant market power, this does not mean that competition considerations are irrelevant in a competitive market. Ratio |
As the Court of Justice pointed out in Case C-192/08 TeliaSonera [2009] ECR I-10717, para 55, a national regulatory authority may intervene to prevent the imposition by a CP of interconnection terms likely to hinder the emergence of a competitive market even if that CP does not have significant market power. Ratio |
This is a point of some practical importance, because a CP without significant market power nevertheless has a monopoly of access to its current customers. Ratio |
Dispute resolution Ratio |
Arrangements for dispute resolution are an integral part of the scheme. STA |
I have already referred to Article 5.4 of the Access Directive, which deals with the resolution of disputes about access and connectivity and cross-refers to Article 20 of the Framework Directive. STA |
Article 20 contains the principal provision governing dispute resolution. STA |
It provides so far as relevant: Article 20 Dispute resolution between undertakings 1. STA |
In the event of a dispute arising in connection with obligations arising under this Directive or the Specific Directives between undertakings providing electronic communications networks or services in a Member State, the national regulatory authority concerned shall at the request of either party, and without prejudic... |
The Member State concerned shall require that all parties cooperate fully with the national regulatory authority. STA |
2 STA |
Member States may make provision for national regulatory authorities to decline to resolve a dispute through a binding decision where other mechanisms, including mediation, exist and would better contribute to resolution of the dispute in a timely manner in accordance with the provisions of Article 8. STA |
The national regulatory authority shall inform the parties without delay. STA |
If after four months the dispute is not resolved, and if the dispute has not been brought before the courts by the party seeking redress, the national regulatory authority shall issue, at the request of either party a binding decision to resolve the dispute in the shortest possible time frame and in any case within fou... |
3 STA |
In resolving a dispute, the national regulatory authority shall take decisions aimed at achieving the objectives set out in Article 8. STA |
Any obligations imposed on an undertaking by the national regulatory authority in resolving a dispute shall respect the provisions of this Directive or the Specific Directives. STA |
Article 4 of the Framework Directive requires that there should be a right of appeal from any decision of a national regulatory authority, whether under its regulatory or its adjudicatory powers. STA |
This is not just a right of judicial review. STA |
The appeal must ensure that the merits of the case are duly taken into account. STA |
The Communications Act 2003 STA |
Effect is given to the Directives in the United Kingdom by the Communications Act 2003. STA |
Under the Act, Ofcom is the national regulatory authority for the purposes of the scheme. STA |
Since it is common ground that the Directives are accurately transposed in the Act, it will generally be convenient to refer to the European rather than the domestic legislation. STA |
It is, however, appropriate to refer to section 190 of the Act of 2003, which deals with the resolution of disputes by Ofcom. STA |
Section 190(2) provides: (2) Their main power is to do one or more of the following- (a) to make a declaration setting out the rights and obligations of the parties to the dispute; (b) to give a direction fixing the terms or conditions of transactions between the parties to the dispute; (c) to give a direction imposing... |
Sections 3 and 4 provide, in terms corresponding to the Directives, for the matters to which Ofcom must have regard in performing its functions generally. STA |
Section 3(3) reflects the permissive character of the regulatory scheme, by providing that Ofcom must have regard, in all cases, to the principles under which regulatory activities should be transparent, accountable, proportionate, consistent and targeted only at cases in which action is needed (emphasis added). STA |
The contract FAC |
BT provides connection services to other CPs on the terms of its Standard Interconnect Agreement. STA |
Clause 12 of this document deals with BT charges. STA |
It provides: 12. STA |
BT SERVICES 12.1 For a BT service or facility the Operator shall pay to BT the charges specified from time to time in the Carrier Price List. STA |
12.2 BT may from time to time vary the charge for a BT service or facility by publication in the Carrier Price List and such new charge shall take effect on the Effective Date, being a date not less than 28 calendar days after the date of such publication, unless a period other than 28 calendar days is expressly specif... |
12.5 As soon as reasonably practicable following an order, direction, determination or consent by Ofcom of a charge (or the means of calculating that charge) for a BT service or facility, BT shall make any necessary alterations to the Carrier Price List so that it accords with such determination. STA |
12.9 If there is a difference between a charge for a BT service or facility specified in the Carrier Price List and a charge determined by Ofcom, the charge determined by Ofcom shall prevail. STA |
A change in BT charges is notified to the counterparties by a Network Charge Change Notice (or NCCN). STA |
The reference in Clause 12 to determinations by Ofcom is to determinations under Clause 26, which reflects the terms of Article 20 of the Framework Directive. STA |
It provides that subject to any other mode of dispute resolution available to the parties, disputes are to be resolved as far as possible by agreement, but failing agreement either party may refer the dispute to Ofcom. STA |
The combined effect of Clauses 12 and 26 is that variations to BTs charges are introduced unilaterally by BT and take effect automatically from the date proposed, subject to the counterpartys right to object. STA |
If agreement cannot be reached, the dispute is referred to Ofcom for determination, unless both parties elect some other form of dispute resolution. STA |
Meanwhile, the variation is treated as provisionally valid. STA |
The Change Notices FAC |
On 3 June 2009, BT issued Network Charge Change Notice 956 in respect of calls to 080 numbers. FAC |
This was on its face an exercise by BT of the powers of variation conferred on BT by Clause 12.2 of the Interconnection Agreement. FAC |
The revised tariffs proposed in the Change Notice provided for BT to make a payment to the originating network if that network charged zero for the call. FAC |
If the originating network charged the caller, there were no charges either way provided that the charge was below a given threshold. FAC |
Above that threshold, the CP interconnecting with BT was required to pay a progressively rising termination charge depending on the band into which the charge to the caller fell. FAC |
On 2 October 2009, BT issued corresponding notices numbered 985 and 986 relating to calls to 0845 and 0870 numbers. FAC |
These provided for BT to charge CPs a variable proportion of the charge made by the originating network to the caller, again depending on the band into which the charge to the caller fell. FAC |
All of these notices were disputed and referred by one or more mobile network operators to Ofcom. FAC |
Ofcoms determinations FAC |
Ofcom issued a final determination dated 5 February 2010 in relation to 080 numbers, and a second final determination dated 10 August 2010 in relation to 0845 and 0870 numbers. FAC |
For present purposes, it is possible to concentrate on the determination relating to 0845 and 0870 numbers, because it is common ground that that determination may be taken to represent Ofcoms position in relation to all three number ranges. FAC |
Ofcom decided that it would permit the changes to be made only if they were fair and reasonable, judged by three governing principles. FAC |
Principle 1 was that mobile network operators should be able to recover their efficient costs of originating calls to the relevant numbers. FAC |
Principle 2 was that the new charges should (i) provide benefits to consumers, and (ii) not entail a material distortion of competition. FAC |
Principle 3 was that implementation of the new charges should be reasonably practicable. FAC |
All three principles can be related to objectives set out in Article 8.2 of the Framework Directive. FAC |
No one has challenged this as an appropriate analytical framework. FAC |
Ofcom found that Principle 1 was satisfied. FAC |
It found that Principle 3 was not satisfied, but it was overruled on that point by the Competition Appeal Tribunal, and there has been no appeal against its decision on that point. FAC |
Accordingly the outcome of this appeal turns on the application of Principle 2. FAC |
Ofcom found that Principle 2 was not sufficiently likely to be met. FAC |
As regards Principle 2(i), which is known as the welfare test, Ofcom distinguished between three potential effects on consumers: the direct effect, essentially the effect on consumer prices for calls to 08 numbers; the indirect effect, which referred to the possibility that revenue gains by BT would feed back to the co... |
It thought that the direct effect was likely to be positive for consumers, because a tariff based on the originating networks charge to the caller was likely to lead mobile network operators to reduce their charges to callers, although it could not say by how much. FAC |
It thought that the indirect effect was also likely to be positive, because over time some of the benefits to BT would be passed on to service providers using the 08 numbers in question, although callers to 08 numbers would not necessarily benefit. FAC |
Ofcoms concern was about the mobile tariff package effect. FAC |
It thought that this was likely to be negative because mobile network operators would probably try to recoup the higher termination charges by raising charges for other services. FAC |
Taking the three effects together, Ofcoms conclusion was as follows: 9.30 As set out above, there is uncertainty about the sizes of each of the Direct, Indirect and Mobile tariff package effects. FAC |
However, as shown in Table 9.1, the overall effect on consumers depends on the relative sizes of these offsetting effects (even though we place more weight on the Direct effect than the Mobile tariff package effect, because of our policy preference for 0845/0870 prices to be aligned with geographic call prices). FAC |
9.31 Our judgement in respect of Principle 2 is therefore finely balanced. FAC |
We recognise the possibility that consumers could benefit from NCCNs 985 and 986. FAC |
However, we also recognise the risk of harm to consumers from NCCNs 985 and 986, particularly in light of our conclusions on the Mobile tariff package effect. FAC |
9.32 Given the uncertainty which we have identified as to whether BT's NCCNs would result in a net benefit or net harm to consumers, and in light of our overriding statutory duties to further the interests of consumers, we consider it is appropriate for us to place greater weight on this potential risk to consumers fro... |
Turning to the competition test at Principle 2(ii), Ofcom concluded that while there were some concerns on this count, the risk of a material distortion of competition arising from the changes was relatively low. FAC |
Taking the welfare test and the competition test together, Ofcom concluded that Principle 2 was not satisfied, because BT could not positively demonstrate that the proposed tariff changes would be beneficial to consumers. RLC |
In summary, what Ofcom decided was that although the direct and the indirect effect of BTs proposed price changes could be expected to result in lower prices for consumers, BT should not be allowed to make the changes because it was not possible to forecast how far mobile network operators would be able to compensate t... |
The decision of the Competition Appeal Tribunal RLC |
Under section 192 of the Communications Act 2003, an appeal to the CAT is an appeal on the merits. Ratio |
It is a rehearing, and is not limited to judicial review or to points of law. Ratio |
This reflects the requirements of Article 4 of the Framework Directive. Ratio |
The CAT allowed BTs appeals. RLC |
The tribunal agreed with the approach embodied in Ofcoms three principles, but they had a different starting point. RLC |
In their view, BT was prima facie entitled to change its charges for three reasons. RLC |
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