On 15 January 2015, Ofcom announced that it had sent a draft pricing rule to the European Commission made under its “ex ante” regulatory powers rather than competition law. The rule would mean that BT, as the former national telecoms company and owner of much of the infrastructure, would have to maintain a sufficient margin between its wholesale and retail superfast broadband charges to allow competitors such as TalkTalk and Sky to compete.
What this means is that if BT is charging Sky an amount for access so that Sky can offer its service to consumers at that price plus a profit margin, BT cannot grant access to itself a price for access far less than that it offered Sky, and subsequently charge consumers much less for the overall product. Such as a scenario is known as ‘margin squeeze’ and is a recognised abuse of a dominant position under Article 102 of the TFEU. The rules seem to be an attempt to avoid a situation where any of BT’s competitors would be forced to take legal action against BT for alleged margin squeeze under Article 102.
The rules even take into account the fact that BT provides the BT Sport channel free to its superfast broadband customers. Ofcom believes it has priced this benefit into the rules accordingly. The rules are a response to a complaint by TalkTalk over alleged margin squeeze under Article 102 that was dismissed by Ofcom in June 2014.
We wrote about this development in a previous post (found here), and made the observation that regulators were keener on using their regulatory powers to resolve disputes rather than establishing cases under competition law.
The Ofcom press release can be found here.