This statement sets out our guidance on how communications providers ("CPs") other than British Telecommunications plc ("BT") can set fair and reasonable wholesale charges for termination of calls to geographic telephone numbers.
When a customer of one CP calls a UK geographic telephone number on another network, the calling customer's CP pays a wholesale charge to the called customer's network to complete the call. This charge is calculated based on the rate per minute for the service, referred to as a 'fixed geographic call termination rate' or 'fixed termination rate' ("FTR").
We have held the view for several years that CPs can set fair and reasonable FTRs by basing them on BT's charges an approach known as reciprocal charging. In the 2009 WNMR, we stated that we continued to hold that view. Whilst we recognised that reciprocal charging is not necessarily the only way in which a CP can fulfil the requirement to set fair and reasonable termination charges, we also stated that FTRs not based on BT's charges are unlikely to be fair and reasonable. This was in significant part because BT's charges are set by a charge control, and are therefore likely to be close to the costs of an efficient operator. This Statement provides guidance on how reciprocal charging should be applied in the future. Our view remains that FTRs higher than those based on BT's charges are unlikely to be fair and reasonable.
On 16 September 2010, we published a consultation inviting views from stakeholders on proposed guidance as to how reciprocal charging should be applied to determine fair and reasonable FTRs in the future. We did this because the industry had been unable to reach consensus on FTRs since the last Reciprocity Agreement expired, due to divergent views of different operators on a range of issues. We recognised that the resulting uncertainty could cause disputes and be disruptive to the industry and said, in January 2010, that we would clarify how reciprocal charging should be applied to FTRs.
In the September 2010 Consultation we set out and analyzed options for guidance on reciprocal charging. We indicated our preference for the option (Option 3 in September 2010 Consultation) under which all CPs' FTRs would ordinarily be no higher than BT's termination rate ("the Benchmark FTR") irrespective of the scale, topology or technology of their networks. We proposed that we would be likely to consider such symmetric FTRs as fair and reasonable, as required by SMP Condition BC1, unless a CP can demonstrate why, in its particular case, a higher FTR would be fair and reasonable. To help assess potential claims for higher FTRs, we proposed the following three-stage test, all stages of which a CP would need to satisfy to support its claim:
- charging a FTR equal to the Benchmark FTR would deny the CP recovery of its actual costs of providing geographic call termination; and
- its actual costs of providing fixed geographic call termination are efficiently incurred; and
- charging a higher FTR than the Benchmark FTR would be offset by demonstrable consumer benefit.
Having carefully considered stakeholders' responses, we have concluded that our guidance, subject to transitional arrangements, is that FTRs for wholesale fixed geographic call termination are presumed to be fair and reasonable where they are symmetric i.e. no higher than the Benchmark FTR (currently BT's LE rate). Central to this decision is our conclusion, confirmed by several respondents, that differences in network topology between BT and other fixed operators are not necessarily reliable indicators of efficiently incurred costs of termination in today's environment of differing fixed network technologies and the availability of wholesale inputs from BT to provide customers with access to networks.
We have concluded that FTRs above the Benchmark FTR are only likely to be consistent with SMP Condition BC1 where a CP is able to show that it meets the three-stage test included in our guidance.