The decision stems from an appeal against Ofcom’s Business Connectivity Market Review (BCMR) last year, which focussed on high quality fixed access services.
In its review Ofcom decided, in a shift from its previous BCMR decision, that a single product market existed across the higher quality leased line products, so called ‘CISBO’ products. It also altered the geographic markets it had previously defined, concluding that there now were four distinct markets, these being the Central London Area (CLA), the London Periphery (LP) the Rest of UK (RoUK) and Hull. Previously, Ofcom had combined the CLA and the LP in a single geographic area called the WECLA, the entirety of which was found to be competitive and thus not subject to regulation.
On the basis of this market definition, Ofcom concluded that BT had significant market power (SMP) in CISBO services in both the LP and the RoUK, but not in the CLA. It consequently imposed a package of remedies, including a requirement on BT to lease unlit fibre in its network to other operators, the so called Dark Fibre Access remedy (DFA Remedy), a passive remedy that has not been seen before in the UK. Ofcom reasoned that the DFA Remedy would promote competition and innovation, as it would give other operators more control over the services they could provide to their customers, and would set the path for deregulation of active services.
The remedy was set to be implemented from October 2017.
BT’s appeal against Ofcom’s decision consisted of four key strands:
- Ofcom had incorrectly defined the product market, in particular that Ofcom failed to apply a break in the product market for CISBO services of 1GB and above;
- Ofcom had incorrectly defined the geographic market;
- Ofcom had incorrectly demarcated BT’s core network, which led to less deregulation; and
- The Dark Fibre remedy should not in any case have been imposed. In particular, BT argued that the remedy disproportionately targeted the most competitive segment of the market, this being the higher quality services, and it would disincentive other operators to build their own networks, undermining the goal of infrastructure competition.
As a result of an earlier separate hearing before the CMA, Ofcom was already required to re-consult on the pricing of the DFA Remedy. Therefore only the first three strands of BT’s appeal were put before the CAT in a hearing that took place in April – May. A second hearing date had provisionally been set for September on the remedies strand of the appeal.
In its Ruling of 26 July the CAT found unanimously in favour of BT, quashing Ofcom’s decision in relation to market definition and the core network. The full judgement with reasons is expected in September. As the imposition of the DFA Remedy was contingent on the market definition, the second hearing is no longer required.
Ofcom must now go back to the drawing board, and raise a fresh consultation on the BCMR. It is expected that it will wait until it has had the chance to review the CAT’s reasoning before doing so. For the time being, BT has withdrawn all plans to provide DFA.