Précis – On 18 June, the Office of Communications  (“Ofcom”) outlined measures to meet growing demand for data services from UK businesses, mobile operators, internet providers and consumers by publishing a consultation document on its 2011/12 business connectivity market review. The document sets out Ofcom’s proposed conclusions concerning market definition and significant market power in relation to the UK market for retail and wholesale leased lines.

What? The business connectivity market review looks at the £2 billion wholesale market for “leased lines” used by businesses and by mobile and broadband operators to transfer data on their networks. Leased lines also provide vital high-speed links between schools, universities, libraries and other public bodies.

These lines are used to build enterprise networks linking the various company sites and enable all types of communications within an organisation. There are two main types of leased lines: traditional interface (“TI”) and alternative interface (“AI”) (primarily Ethernet) leased lines. Together, these are by far the most common types of leased lines used by enterprises in the UK.

Market definition

In the wake of the 2007/08 review, the popularity of using wavelength-division multiplexing technology (“WDM”)  had reached a new low due to it being considered too costly for the limited demand. However, the new report has highlighted that there has been a surge in bandwidth requirements linked to the growing use of cloud computing, e-commerce, video content and so on. As a result, WDM equipment has become more financially accessible, with major providers now using WDM to provide high-bandwidth services.

With regard to the wholesale market definition, Ofcom believes it continues to be appropriate to inform its wholesale bandwidth breaks by referring to its retail analysis. The main differences with Ofcom’s 2007/08 market review, however, are that there are separate markets for regional and national TI trunk connectivity. In its previous review, Ofcom defined a single TI trunk market. It now considers that the characteristics of the regional trunk market are very similar to those of symmetric broadband origination, and are significantly different from those of national trunk routes.

Consistent with the provisional view in relation to the retail market, Ofcom also proposes to define a wholesale multiple-interface (“MI”) market, which includes any service faster than 1 gigabit per second and any service delivered with WDM equipment at the end-user's premises, irrespective of bandwidth and interface.

Significant market power

Ofcom has proposed that BT has significant market power in a number of wholesale leased line services, and that charge controls should be imposed in the relevant markets to protect purchasers of these products. The consultation identifies the proposed level for those price controls and expects that the proposed controls will lead to price reductions for most customers of the leased lines market.

Ofcom is proposing overall caps linked to inflation (measured under the retail price index), designed to align the prices of these BT products with their cost by 2015. This form of charge control also provides an incentive for BT to make efficiency gains.

So what? The outcome of the consultation could have an effect on businesses, mobile operators, internet providers and consumers. The consultation closes on 24 August 2012 and Ofcom expects to publish a statement on its conclusions early next year. Ofcom will outline the prices it proposes BT can charge its customers for these products in the coming weeks.