Request from BT for exemption from the Undertakings under the Enterprise Act 2002 for certain high bandwidth services

Summary

1.1 On 22 September 2005 British Telecommunications plc ("BT") offered, and Ofcom accepted, a set of undertakings pursuant to section 154 of the Enterprise Act 2002 (the "Undertakings"). The Undertakings included mechanisms to allow BT and Ofcom to agree exemptions from the Undertakings. The objective of this Consultation is to seek views from interested parties on BT's revised request for an exemption from the Undertakings for certain high bandwidth fibre-based products.

1.2 These services are currently supplied by Openreach to other Communications Providers (CPs) and BT's downstream divisions, on an Equivalence of Inputs (EoI) basis. High bandwidth fibre products are typically used to provide dedicated connections between two sites (for example, corporate sites) to satisfy the growing demand for high bandwidth applications such as data centre connectivity and very low latency financial applications, and to extend private networks.

1.3 BT originally requested an exemption from the requirement in the Undertakings to provide high bandwidth (i.e. bandwidths above 1Gbit/s) Ethernet access services and optical spectrum access services in May 2011. We consulted on the original exemption request on 31 May 2011 proposing to grant a temporary exemption to Openreach. We did not perform a detailed market assessment but relied on information contained within the Business Connectivity Market Review (BCMR) conducted in 2008 (the BCMR 2008). Given that there were a number of stakeholders that opposed our proposal to grant the exemption in advance of the next BCMR and that we had recently commenced this work, we postponed making a decision on the exemption until the results of the new BCMR (the BCMR 2012) were available.

1.4 We have now completed our provisional analysis for the BCMR 2012 and published a consultation on our proposals on 18 June 2012. This includes a detailed assessment of the competitive conditions in the supply of the services relevant to this exemption.

1.5 The BCMR 2012 proposes that BT has significant market power (SMP) in the provision of these high bandwidth services in the UK excluding a geographic area defined as West, East and Central London Area (WECLA) and also excluding the Hull area. We refer to this market in the BCMR 2012 as the "wholesale market for multiple interface symmetric broadband origination in the UK excluding the Hull Area and the WECLA".

1.6 BT has now submitted a revised exemption request (set out at Annex 4) for current and potential access and backhaul services above 1Gbit/s that is geographically limited to the markets in which BT does not have SMP. The BCMR 2012 has provisionally identified that this is the case in the WECLA and therefore we are consulting on an exemption that applies to these services in the WECLA only.

1.7 BT has requested an exemption because it considers these services are supplied in a competitive market and that requiring Openreach to offer these services on an EoI basis restricts its flexibility to compete effectively to the detriment of itself, CPs and their end users. In the absence of EoI obligations, Openreach would be able to negotiate prices and contractual terms on a bespoke basis.

1.8 We are consulting on whether to grant BT's revised exemption request and, if so, on the precise terms of that exemption. Having considered the proposals in the BCMR 2012 consultation that the market for relevant services within the WECLA is competitive with a choice of suppliers and that no CP has been found with SMP, our provisional conclusion is that this exemption is unlikely to have a significant impact on the ability of other CPs to compete in this market or on end-users.

1.9 In addition, our provisional conclusion is that the exemption is unlikely to have an adverse impact on the overall operation of the Undertakings. However, we are proposing that the Equivalence of Access Office (EAO) will have an additional monitoring role to give added assurance that this exemption does not undermine the delivery of services on an EoI basis outside the WECLA.

1.10 We remain of the view that the absence of a finding of SMP does not automatically relieve BT of its obligations under the Undertakings. The granting of an exemption requires careful consideration of the matters on a case-by-case basis and particularly whether the exemption may have an impact on the overall operation of the Undertakings.

1.11 Given that the BCMR 2012 is still at consultation stage, we do not intend to make a final decision on whether or not to grant BT's revised exemption request until the BCMR 2012 has been completed. Our current intention is to publish the statement for this exemption at the same time as the BCMR 2012 statement. Should additional information come to light during the BCMR 2012 consultation that would significantly impact the substantive results of the analysis of the relevant markets, then we may need to revisit our proposals in relation to BT's exemption request.

1.12 We are asking stakeholders to respond on the proposals set out in this consultation by 24 August 2012. It is important to be clear that the scope of responses should be confined to the issues raised within this document. Should stakeholders wish to comment on the market analysis conducted within the BCMR 2012 they should respond accordingly to that consultation. As noted above, to the extent that the conclusions of the BCMR 2012 vary from consultation proposals, we will take this into account before publishing a statement on the present consultation.