Undue discrimination by SMP providers - How Ofcom will investigate potential contraventions on competition grounds of Requirements not to unduly discriminate imposed on SMP providers

Published 15 November 2005

Introduction

1.1 Ofcom (the Office of Communications) has imposed regulation on some companies it has found to be dominant, requiring them not to unduly discriminate, to prevent them from using their dominance to the detriment of competition and consumers.

1.2 These guidelines illustrate how Ofcom will investigate potential contraventions of these requirements.

1.3 These guidelines will be of interest to:

• SMP Providers ^(-1-) that are subject to a Requirement not to unduly discriminate;
• the customers and competitors of those providers within the markets affected; and
• other stakeholders who are interested in the effectiveness of competition within communications markets.

1.4 These guidelines do not cover Ofcom's approach to investigating potential exploitation of customers on equality or fairness grounds that may be prohibited by the same requirements; or other discrimination prohibitions imposed under the Communications Act 2003 (the Act) ^(-2-) ; or investigations of compliance with the Competition Act 1998.

Summary

1.5 These guidelines consider Requirements not to unduly discriminate between customers, on competition grounds, imposed on providers that Ofcom considers to have significant market power (SMP providers).

1.6 A typical Requirement not to unduly discriminate, imposed on SMP providers under section 45 of the Act reads:
The Dominant Provider shall not unduly discriminate against particular persons or against a particular description of persons, in relation to [Network Access].Section 4 sets out the legal basis for Requirements not to unduly discriminate.

1.7 The approach to investigating compliance with these requirements, which is illustrated in these guidelines, has two parts.

1.8 Firstly, in all cases, the guidelines set out the questions that may be considered during an investigation. This would not prevent Ofcom from considering each potential contravention on the facts of the case.

• To begin with Ofcom will consider whether any differences in transaction conditions (e.g. the product, its reliability, timing of provision, information about the product) offered to two customers reflect relevant differences in the customers' circumstances; or
• Ofcom will consider whether any relevant similarities in customer's circumstances are reflected in transaction conditions offered to two customers.
• Following either of these questions, Ofcom will consider the capability of any differences (or similarities) in transaction conditions that are not objectively justified by relevant differences (or similarities) in the customers' circumstances to harm competition.

1.9 In determining the capability of any differences (or similarities) identified to harm competition Ofcom will consider:

• the capability that the behaviour had to harm competition;
• the capability that the behaviour has to harm competition; and
• the capability that the behaviour will have to harm competition if it is allowed to continue.

1.10 Secondly, Ofcom will treat as a special case, differences in non-price transaction conditions ^(-3-) offered by an SMP provider in favour of its own downstream business (a vertically integrated SMP provider).

1.11 That is, Ofcom may presume undue discrimination when a vertically integrated SMP provider offers similar price, but different non-price transaction conditions to an external wholesale customer, when compared to a downstream business owned by the SMP provider.

1.12 The SMP provider will then have the opportunity to provide evidence demonstrating that differences are objectively justified, and Ofcom will consider any evidence provided in light of the questions above.

1.13 The benefits of guidelines are addressed in section 2. The meaning of undue discrimination and the reasons why non-price differences offered by vertically integrated providers are considered a special case are covered in section 3. The approach to investigations is contained in section 5. A description of some non-price transaction conditions that may lead to undue discrimination are given in annex 1.

1.14 The approach contained in these guidelines replaces the approach described in the following documents, to the extent that these documents apply to Requirements not to unduly discriminate placed on SMP providers:

• sections 3.4 to 3.14 and A3.6 to A3.7 of Oftel's Access Guidelines ^(-4-)
• Oftel's statement on BT's internet services ^(-5-) , and
• any other guidance given by Oftel on the interpretation of undue discrimination.

1.15 Although the guidelines set out the approach Ofcom expects to take, they do not have binding legal effect. Ofcom will consider each case on its own merits. We will only apply the approach where it is appropriate to do so and in the event that Ofcom decides to depart from the guidelines, we will set out our reasons for doing so.

Footnotes:

1.-SMP providers mean providers Ofcom has notified as having significant market power.

2.-Throughout this document the Act refers to the Communications Act 2003.

3.-Non-price transaction conditions mean features of a product other than price (see glossary).

4.-Imposing access obligations under the new EU Directives, September 2002.

5.-Oftel statement on BT's marketing of Internet services and use of joint billing, May 2002.