1.1 These draft determinations (Draft Determinations) set out our proposals for resolving the disputes brought by Cable & Wireless UK (C&W), THUS Group Plc (THUS), Global Crossing (UK) Telecommunications Limited (Global Crossing), Virgin Media Limited (Virgin), Verizon UK Limited (Verizon) and COLT Telecommunications (COLT) (collectively Disputing CPs) against British Telecommunications plc (BT) about BTs charges for services known as partial private circuits (PPCs) (collectively these Disputes).
1.2 We propose to conclude that BT has overcharged the Disputing CPs for five PPC services, and that BT must make repayments to the Disputing CPs for the amounts that it has overcharged them.
1.3 Ofcom also today publishes its proposals for resolving disputes about BTs charges for various Ethernet services (Ethernet Disputes). There are some analytical issues that are common to the Ethernet Disputes and these Disputes, in particular the question of what data we should use in our analysis, which is discussed at Section 10 of this document.
Background to the Disputes
1.4 On 25 June 2008, C&W, THUS, Global Crossing, Virgin and Verizon referred disputes with BT to Ofcom for resolution. The Disputing CPs alleged that BT had overcharged them for PPC services in the period 24 June 2004 to 30 September 2008, on the basis that BT had failed to comply with its obligations to ensure that its charges for those services were cost orientated. On 20 October 2008 COLT submitted a similarly worded dispute. The Disputing CPs requested that Ofcom determine the level of charges that should have applied for the services and direct BT to refund any overcharge, with interest.
1.5 PPCs are the wholesale inputs used to create leased lines, which are fixed permanent communications connections providing capacity between two points. There are two main parts to PPCs terminating segments and trunk segments. Terminating segments can consist of up to four services: connection, main link, local end and distribution. PPCs are purchased as either a terminating segment or as a terminating segment combined with a trunk segment. Communications Providers (CPs) are able to combine PPCs with their own networks to offer leased line services to their own customers (see Section 6).
1.6 On 25 July 2008, we decided that it was appropriate for Ofcom to handle the Disputes on the basis of section 186(3) of the Communications Act 2003 (the Act). We proposed that the scope of the Disputes should be:
to determine whether, in the period from 24 June 2004 to 30 September 2008:
(i) BT has or will have overcharged the Parties for PPCs (based on whether or not BTs charges for the underlying trunk and terminating elements of those PPCs were, during that time, reasonably derived from the costs of provision based on a forward looking long run incremental cost approach and allowing an appropriate mark up for the recovery of common costs including an appropriate return on capital employed) and, if so;
(ii) by how much the Parties will have been overcharged; and
(iii) whether and by how much BT should reimburse the Parties.
1.7 On 14 October 2009 Ofcom issued the Final Determinations to resolve the Disputes in relation to most of the PPC services (Final Determinations). The Final Determinations determined that BT had overcharged the Disputing CPs approximately 42 million for 2Mbit/s PPC trunk services over the period 1 April 2005 to 30 September 2008. Ofcom required BT to repay this overcharge with interest.
1.8 The Final Determinations did not reach conclusions in relation to 140/155Mbit/s PPC terminating segment services or 34/45Mbit/s PPC trunk services. We explained that we would issue determinations to resolve the Disputes in relation to all four 140/155Mbit/s PPC terminating segment services and 34/45Mbit/s PPC trunk services once we had obtained further data from BT to enable us to assess these services further and identify whether overcharging had occurred and whether BT is required to make repayments to the Disputing CPs.
1.9 BT appealed the Final Determinations under section 192(2) of the Act. The Competition Appeal Tribunal (CAT) issued a preliminary issues judgment on 11 June 2010 and its final judgment on 22 March 2011 (PPC Judgment). The CAT dismissed BTs appeal in its entirety and upheld the Final Determinations.
