Fixed access market reviews: wholesale local access, wholesale fixed analogue exchange lines ...

599 Pages·2014·4.31 MB·English

Fixed access market reviews:
wholesale local access, wholesale
fixed analogue exchange lines,
ISDN2 and ISDN30
Volume 1:
Statement on the markets, market power
determinations and remedies

Non-confidential Version

Statement

Published: 26 June 2014
Fixed Access Market Reviews – Statement: Volume 1
About this document
This document sets out the conclusions of our review of the UK’s Fixed Access Markets.
These markets cover the access connections used to provide telephone and broadband
internet services (including superfast broadband) to residential and business consumers.
This document sets out the regulatory policies that we are introducing in these markets.
These policies aim to promote competition and investment, which we believe will continue to
deliver substantial benefit to consumers.
Our assessment is focused on the wholesale level - the services bought by communications
providers like Sky, TalkTalk and BT Consumer - as this has proved to be the best way of
ensuring strong, effective competition at the retail level.
This review includes the following markets: Wholesale Local Access (the physical
connection between the home/business location and the telephone exchange); Wholesale
Fixed Analogue Exchange Lines (standard analogue telephone services) and; Wholesale
ISDN2 and ISDN30 (digital telephone services, primarily for business use).
The regulatory policies in these markets are intended to maintain confidence for investment
and competition as the market moves from copper-based telecoms services to fibre-based
superfast services.
An important issue is the margin available to competitors when selling fibre-based superfast
services that are based on wholesale inputs which they buy from Openreach. A consultation
setting out our proposals on this issue was published on 19 June 2014, and we expect to
publish a final Statement later in 2014.
Fixed Access Market Reviews – Statement: Volume 1
Contents

Section Page
1 Executive summary 1
2 Introduction 12
3 Market definition and SMP analysis: Wholesale Fixed Analogue
Exchange Lines 25
4 Market definition and SMP analysis: ISDN30 63
5 Market definition and SMP analysis: ISDN2 92
6 Market definition and SMP analysis: Retail markets in the Hull
Area 119
7 Market definition and SMP analysis: Wholesale Local Access 133
8 Remedies: Approach 160
9 Quality of Service: Summary 166
10 Remedies: General remedies for wholesale fixed access
markets 172
11 Remedies: Quality of Service 250
12 Remedies: WLA next generation access 354
13 Remedies: WLA current generation access 451
14 Remedies: WLA conclusion 467
15 Remedies: WFAEL 471
16 Remedies: Summary of approach to setting LLU and WLR
Charge Controls 481
17 Remedies: ISDN30 and ISDN2 491
18 Remedies: Time Related Charges and Special Fault
Investigations – approach to pricing 521
19 Remedies: Charge control conditions and legal tests 574

Fixed Access Market Reviews – Statement: Volume 1
Section 1
1 Executive summary
Introduction
1.1 This Statement sets out decisions arising out of our review of certain fixed access
markets in the United Kingdom (‘UK’). The review covers the next three years and
has been conducted under the European Framework for Electronic Communications.
Throughout this document, the review is referred to as the ‘Fixed Access Market
Reviews’ or ‘FAMR.’
1.2 In this Statement, we set out our assessment of the fixed access markets and
whether any of these markets are not effectively competitive as a result of any
communication provider (’CP’) having significant market power (‘SMP’). We then set
out the regulatory obligations to address the competition concerns we have identified
arising out of that SMP. This includes, for example, requirements to provide services
and, in some cases, controls on the prices charged for such services. In each case,
we explain the approach we have adopted, the analysis that has been undertaken
and our conclusions.
1.3 The new obligations imposed in this review will replace the existing obligations in the
fixed access markets and will in most cases take effect from the publication of the
final Statement.
Background
1.4 The FAMR has considered whether and to what extent regulation is needed for the
next three years in the following markets in the UK:
• Wholesale Fixed Analogue Exchange Lines (‘WFAEL’);
• wholesale ISDN30;
• wholesale ISDN2; and
• Wholesale Local Access (‘WLA’).
1.5 We have also looked at the retail markets for fixed analogue exchange lines, ISDN30
and ISDN2 in the Hull area, and the retail ISDN2 market in the UK excluding the Hull
Area.
1.6 In the course of this review, we published the following consultation documents:
• Fixed access market reviews: wholesale local access, wholesale fixed analogue
exchange lines, ISDN2 and ISDN30 – Call for inputs, 9 November 2012 (‘the 2012
FAMR Call for Inputs’);
• Fixed access market reviews: wholesale local access, wholesale fixed analogue
exchange lines, ISDN2 and ISDN30 - Consultation on the proposed markets,
market power determinations and remedies, 3 July 2013 (‘the July 2013 FAMR
Consultation’);
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Fixed Access Market Reviews – Statement: Volume 1
• Fixed access market reviews: approach to setting LLU and WLR charge controls,
11 July 2013 (‘the July 2013 LLU WLR Consultation’);
• Fixed access market reviews: Openreach quality of service and approach to
setting LLU and WLR charge controls, 19 December 2013 (‘the December 2013
LLU WLR Consultation’); and
• Fixed access market reviews: Further consultation on notification periods,
compliance with requirements on the VULA margin, and approach to pricing for
TRCs and SFIs, 16 January 2014 (‘the January 2014 FAMR Consultation’).
1.7 On 19 May 2014, having taken account of responses to these consultations and after
having made modifications to our proposals which appeared to us appropriate, we
notified our intended measures and an explanatory draft Statement setting out the
reasons for them to the European Commission (EC), BEREC and other National
Regulatory Authorities (NRAs). In its decision letters of 19 June 2014, the EC made a
number of comments regarding our market definitions, but did not raise any concerns
about the measures set out in the draft Statement (we received no responses from
BEREC or any NRAs). We have taken utmost account of the EC’s comments and
addressed them in the relevant sections of the Statement.
1.8 At the same time as carrying out this review we have also carried out a review of the
Wholesale Broadband Access (WBA) Market and a review of regulatory financial
reporting. The 2014 WBA Statement has been published at the same time as this
document, while our conclusions on regulatory financial reporting were published on
20 May 2014.
1.9 Finally, we have decided to consult further on our proposals for addressing the
margin set by BT for Virtual Unbundled Local Access (‘VULA’), and so this Statement
does not reach any decisions on remedies dealing with this issue. The consultation
setting out our proposals on the VULA margin was published on 19 June 2014, and
we expect to publish a final Statement later in 2014.
Summary of conclusions
Market definition and SMP assessment
1.10 We have identified the same markets and made the same market power
determinations as were made in the most recent set of reviews for these markets
(with the exception of the retail ISDN2 market in the UK excluding the Hull area, and
retail markets in the Hull Area).
WFAEL
1.11 Wholesale fixed analogue exchange lines are a narrowband access service
supporting standard analogue telephony services (such as voice and, historically,
facsimile and dial-up internet services).
1.12 We define the following markets:
• Wholesale fixed analogue exchange lines in the UK excluding the Hull Area; and
• Wholesale fixed analogue exchange lines in the Hull Area.
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Fixed Access Market Reviews – Statement: Volume 1
1.13 We find that BT continues to have SMP in the wholesale fixed analogue exchange
lines market in the UK excluding the Hull Area and that KCOM has SMP in the Hull
Area.
ISDN30
1.14 ISDN30 is an access service supporting up to 30 narrowband 64kbit/s channels and
is used most commonly to provide multiple telephone lines to larger business sites.
1.15 We define the following markets:
• Wholesale ISDN30 exchange line services in the UK excluding the Hull Area; and
• Wholesale ISDN30 exchange line services in the Hull Area.
1.16 We find that BT has SMP at the wholesale level in the UK excluding the Hull Area,
and KCOM has SMP at the wholesale level in the Hull Area.
ISDN2
1.17 ISDN2 is a narrowband access service designed to cater for smaller business sites
with single line ISDN2 services providing 2 channels (each 64kbit/s). We define the
following markets:
• Wholesale ISDN2 exchange line services in the UK excluding the Hull Area;
• Wholesale ISDN2 exchange line services in the Hull Area; and
• Retail ISDN2 exchange line services in the UK excluding the Hull Area.
1.18 We find BT has SMP at the wholesale level, but no SMP at the retail level in the UK
excluding the Hull Area, and KCOM to have SMP at the wholesale level in the Hull
Area.
Other retail markets in the Hull Area
1.19 Previous reviews have identified the following markets:
• Retail fixed analogue exchange lines in the Hull Area;
• Retail ISDN2 exchange line services in the Hull Area; and
• Retail ISDN30 exchange line services in the Hull Area.
1.20 Having applied the three-criteria test1 in accordance with the European
Commission’s Recommendation on relevant product and service markets in which ex

1 The test sets out those conditions which must be met to warrant the imposition of ex ante regulation in markets
not listed in the EC Recommendation: the presence of high and non-transitory barriers to entry (of a structural,
legal or regulatory nature); a market structure which does not tend towards effective competition within the
relevant time horizon (examining the state of competition behind the barriers to entry); and the insufficiency of
competition law alone to adequately address the market failure(s) concerned.
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Fixed Access Market Reviews – Statement: Volume 1
ante regulation may be warranted (‘the Relevant Markets Recommendation’)2, we
consider that competition law is now sufficient to address any competition concerns
identified in each of these markets. Therefore, in light of this, we consider that it is not
appropriate to identify and analyse these retail markets in the Hull Area.
WLA
1.21 WLA refers to the fixed connection from the local exchange/access node to the end-
user. That connection is an input into a variety of retail services – narrowband
telephony, broadband (both standard and superfast), ISDN2, and ISDN30.
1.22 We define the following markets:
• the supply of loop-based, cable-based and fibre-based wholesale local access at
a fixed location in the UK excluding the Hull Area; and
• the supply of loop-based, cable-based and fibre-based wholesale local access at
a fixed location in the Hull Area.
1.23 We find that BT and KCOM have SMP in the UK excluding the Hull Area and the Hull
Area respectively.
Remedies
1.24 We first detail the general remedies we are imposing on BT and KCOM for all
markets where we have identified SMP, before detailing the specific access remedies
we are imposing on BT for each market.
General remedies
1.25 We are maintaining, for the most part, the current set of general remedies3 imposed
in the markets in which we have found SMP in the UK excluding the Hull Area and
the Hull Area respectively. These include: a requirement to provide network access
on reasonable request; request for new network access; no undue discrimination;
Equivalence of Inputs; requirement to publish a Reference Offer; requirement to
notify charges, terms and conditions; requirement to notify technical information; cost
accounting; and accounting separation. Our analysis indicates that these remedies
continue to be appropriate, though in some areas they have been modified or
extended.
1.26 The more substantive changes, and our reasons for them, are set out in summary
below.

2 EC, Commission Recommendation of 17 December 2007 on relevant product and service markets within the
electronic communications sector susceptible to ex ante regulation in accordance with Directive 2002/21/EC of
the European Parliament and of the Council on a common regulatory framework for electronic communications
networks and services, (2007/879/EC),
www.ec.europa.eu/information_society/policy/ecomm/doc/library/proposals/rec_markets_en.pdf.
3 General remedies are remedies not specific to any particular product or service, but which provide general
obligations which apply to most, if not all, products and services with the aim of promoting competition.
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Fixed Access Market Reviews – Statement: Volume 1
Quality of service
1.27 To address concerns in relation to quality of service delivery with respect to the
provision of access services, we have decided to specify the minimum set of services
against which BT is required to offer SLAs and SLGs; we also impose additional
obligations which we set out in the section on quality of service remedies.
Equivalence of Inputs (‘EOI’)
1.28 We are imposing an obligation on BT to provide network access on an EOI basis.
Price notification
1.29 We have reduced the notice period for ISDN2 down to 28 days. We are also setting
28 days’ notice for price reductions (including special offers) for WLA products and
WLR rentals.
Statement of Requirements (‘SoR’)
1.30 BT’s SoR guidelines will be required to meet the principle that, where BT rejects a
request for new network access, the decision is clear and transparent. We also
provide guidance on how any confidentiality concerns arising out of this requirement
might be addressed, including the use of the Office of the Telecommunications
Adjudicator and independent consultants.
Quality of service
1.31 In addition to the relevant general remedies noted above, we also impose additional
obligations in respect of quality of service. Specifically we:
• require BT to meet minimum standards for specified services in the WLA and
WFAEL markets; and
• require BT to provide and publish specified KPIs for WLA, WFAEL, ISDN2 and
ISDN30.
1.32 In addition, we set out our expectation for the process of negotiating new, or
modifications to, SLAs and SLGs
WLA – Next Generation Access (‘NGA’) remedies
VULA
1.33 VULA provides CPs with access to BT’s NGA network through a virtual connection
giving them a defined link to their customers, with substantial control over that link.
We are maintaining the obligation on BT to provide VULA services to all CPs on
reasonable request.
VULA characteristics
1.34 We consider that the current VULA characteristics remain appropriate for the next
market review period.
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Fixed Access Market Reviews – Statement: Volume 1
VULA pricing
General approach to VULA pricing
1.35 We will not regulate the level of VULA prices during the next market review period,
allowing BT to retain pricing flexibility on NGA pricing. In particular, we consider that
competitive constraints will reduce the risk of unregulated VULA pricing levels (such
as the pricing of current generation access (‘CGA’) services and Virgin’s services).
Further, there remains uncertainty about future demand for NGA services and the
time profile over which NGA investment should be recovered. As such, determining
the level of charges remains difficult and carries a risk of setting inappropriate price
levels that would harm incentives for efficient investment (either expanding the
network or improving technology) and BT’s ability to experiment with pricing to
encourage fibre take-up.
VULA switching
1.36 While our general approach to VULA pricing, is to provide BT with pricing flexibility
over the level of VULA charges, we consider that it is appropriate to distinguish
switching costs from the general pricing approach as the costs of switching are
important for retail competition (this is particularly important in light of BT’s high share
of retail VULA connections).
1.37 In light of this, we consider that the current £50 charge for VULA to VULA migrations
is high, particularly when benchmarked against similar services/activities (such as
WBC-FTTP, WLR Transfer and IPStream migrations). As such we are imposing a
cost-based charge control for the VULA to VULA migration charge, setting the price
at £11.
1.38 In addition, in order to further facilitate switching and promote retail competition for
VULA-based services, we are also imposing a one month minimum term for VULA
migrations at the wholesale level.
SLU
1.39 SLU allows CPs to deploy their own NGA network between the exchange and
(usually) the cabinet, using BT’s lines from the cabinet to the end-user. We are
maintaining the obligation on BT to offer SLU across the UK excluding the Hull Area
to all CPs on reasonable request. This will provide CPs with a complementary
alternative to VULA to offer superfast services by deploying their own NGA networks,
or to exploit areas where NGA has not been deployed (e.g. the final 10% of
households which are not addressed through the current Broadband Development
UK programme).
1.40 With respect to pricing, we have imposed a Basis of charges obligation to address
the risk of excessive prices. The relevant condition sets out that prices should be set
to reflect the price differentials for the corresponding LLU services (given that they
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