Openreach has proposed to simplify charges for certain wholesale Ethernet leased line services, known as Ethernet Access Direct services, by changing the way it charges for excess construction. Openreach is proposing to exempt certain services from excess construction charges and apply a balancing charge to standard connection charges for all orders for the same Ethernet Access Direct services.  As a result Ofcom is proposing to issue two new directions relating to these services and has issued a consultation to obtain stakeholder’s views on such an approach.

What?

In Ofcom’s recent review of competition in the leased line market (Business Connectivity Market Review - Statement, dated 28 March 2013 (“BCMR”)) it found that BT has significant market power in the provision of wholesale Ethernet leased line services known as Ethernet Access Direct services.  Ofcom therefore imposed a number of ex ante remedies on the provision of Ethernet Access Direct services, including controls on Openreach’s charges for these services.

In order to provide leased line services, Openreach is often required to construct specific infrastructure to enable the provision of the services to end users.  The charges for constructing such infrastructure are currently levied on a bespoke basis and are referred to as “excessive construction charges” (“ECCs”).   

So what?

Following Ofcom’s decision in the BCMR, Openreach has proposed simplifying the process for obtaining certain Ethernet Access Direct services by changing the way in which it charges for these services.  Openreach proposes to exempt the first £2,800 (the “Exemption Amount”) of itemised ECC’s from the provision of certain Ethernet Access Direct services.  Any resulting loss in revenue from the introduction of the Exemption Amount will be recovered by way of a balancing charge of £548 being applied as part of the standard connection charge for those services (the “Openreach Proposal”). The Ethernet Access Direct services which are to be excluded, under the Openreach Proposal, include certain resilient services (referred to as “Resilient Option 1”) which usually require construction work at a significant cost to Openreach.    

Ofcom’s initial view is that the Openreach Proposal would result in material improvements for both communications providers and end-users a like. Whilst it acknowledges that the Openreach Proposal may result in some communications providers and end users paying more than they would otherwise, this is outweighed by the positive effects of the new approach. The benefits that Ofcom refers to include: (i) speeding up the provision of exempt Ethernet Access Direct services by reducing the ECC approval period; and (ii) improvements in the efficiency of the provisioning process by reducing the number of ECC’s that will need to be approved as a result of the introduction of the Exemption Amount.   

However, following the imposition of charge control conditions 5.2 and 5.3, which regulate amongst other things the level of Ethernet Access Direct connection charges inside the Western, Eastern and Central London areas and outside them respectively, the Openreach Proposal would breach these conditions.  Ofcom does not intend to change the charge controls imposed under the BCMR but is instead intending to issue two new directions disapplying the relevant paragraphs of charge controls 5.2 and 5.3 in relation to the Ethernet Access Direct services. Ofcom’s justification for such a proposition is that the directions will ensure that BT continues to address both the competition problems for which the charge controls were originally imposed as well as Ofcom’s policy objectives. 

Stakeholders were requested to submit their responses to this consultation by 14 March 2014 and it will be interesting to see developments from here.