Review of the fixed narrowband services wholesale markets

Executive Summary

Summary

Introduction

1.1 In this review we assess the state of competition in the wholesale fixed narrowband services markets. Where competition is not effective we assess how best we should regulate the behaviour of any company we find to have Significant Market Power (SMP), which is the power to influence markets in a way that could be detrimental to consumers.

1.2 The wholesale fixed narrowband services are the markets that provide wholesale products for access (exchange lines) and calls on fixed networks. These wholesale products are used by retailers to provide products to citizens and consumers.

1.3 We explain our proposals and the analysis behind them in this consultation and invite comment on them.

Background

1.4 We are reviewing the different wholesale components that are required to provide retail access and calls products. These relate to the supply of wholesale exchange lines, call origination, call termination and various conveyance and transit markets that provide connectivity across narrowband networks.

1.5 We last reviewed all these markets in 2003. In 2005, we reviewed a subset of them again (local-tandem conveyance and transit and inter-tandem conveyance and transit) due to significant developments that were occurring in these markets. This led to us deregulating the inter-tandem conveyance and transit market.

1.6 The outcome of the 2003 and 2005 reviews was that we found that British Telecommunications plc (BT) had SMP in the UK except the Hull Area in the following markets:

• exchange lines;
• call origination;
• fixed geographic call termination;
• local-tandem conveyance and transit; and
• single transit.

1.7 We also found that KCOM plc (KCOM) (which previously traded under the name Kingston Communications and retains this name as a brand for narrowband services in the Hull Area) had SMP in the Hull Area in the following markets:

• exchange lines;
• call origination; and
• fixed geographic call termination.

1.8 We also found that all providers of fixed geographic call termination had SMP for termination on their own networks.

1.9 We are also reviewing several related areas. These are interconnection circuits, BTs product management, policy and planning activities related with providing SMP products.

1.10 Since we last reviewed these markets there have been a number of developments. There has been significant growth in the use of wholesale products provided by BT, growth in the use of local loop unbundling (LLU) to provide narrowband services and an increase in the interconnection of communications providers (CPs) to BTs local exchanges. We therefore consider it appropriate to review these markets based on these developments.

Summary of proposals

1.11 We are proposing that BT retains SMP in the markets for exchange lines, call origination and call termination in the UK outside Hull. We are also proposing that KCOM retains SMP in the markets for exchange lines, call origination and call termination in Hull. Further, we are proposing that all providers offering fixed geographic call termination retain SMP in call termination on their own network.

1.12 Since the last review, several CPs have deployed their own networks to interconnect to BT at the local level in the BT network. This means they are less reliant on BT to provide services that carry traffic from its local exchanges to their own networks. These services constitute the local-tandem conveyance and transit market. We are therefore proposing that BT no longer has SMP in local-tandem conveyance and transit.

1.13 We are also proposing that the inter-tandem conveyance, inter-tandem transit and single transit products form a single market and that BT does not have SMP in this market. This is because the increased amount of interconnection between CPs means they have more choice in routing of their traffic.

1.14 In the markets where BT retains SMP, we are imposing remedies so that other CPs are able to gain access to services that allow them to provide retail products in competition with BTs own retail operations. The majority of these remedies are unchanged from those currently in place. We are proposing to update some remedies to reflect the developments that have occurred in the market.

1.15 The key changes we propose in markets where BT retains SMP are:

• to remove the requirement for BT to provide certain exchange line services (Wholesale Line Rental (WLR)) and call origination services (Carrier Pre-Selection (CPS)) in compliance with functional specifications as directed by Ofcom. These products are now mature. We consider the functional specifications are no longer proportionate and could, potentially, inhibit future development of services;
• to impose additional obligations in relation to ISDN30 exchange lines, given the high returns BT has reported for this service;
• to consult on whether it is appropriate to reduce notification periods for price changes; and
• to update reporting obligations to focus on demonstrating BTs compliance with its SMP obligations (whereas it now reports a wider set of data).

1.16 In the markets where KCOM retains SMP, we are imposing remedies so that other CPs are able to gain access to services that allow them to provide retail products in competition with KCOMs own retail operations. These remain unchanged.

1.17 In the markets where CPs retain SMP for terminating fixed geographic calls on their networks, we are imposing the same remedy as is currently in place. This remedy requires these CPs to provide call termination on fair and reasonable terms.