Cost orientation is an important principle in our regulation of telecoms operators with significant market power (SMP). We use it to ensure that the charges set by operators with market power are based on cost. However, the current published guidelines on the subject are now 10 years old; 10 years in which telecoms networks and in some cases competitive conditions have changed significantly.
Regulatory reporting should go hand-in-hand with other SMP obligations; not only cost orientation, but also charge controls or non-discrimination. Such reporting requirements currently apply to BT, which we have found to have a SMP in a number of telecoms markets. Similar, but less far reaching obligations apply to Kcom. Both for Ofcom as the regulator and for stakeholders, financial information provided by BT and Kcom can add significantly to transparency.
We are starting a review of our use of cost orientation obligations. At the same time we are also carrying out a review of the separate, but related issue of the regulatory financial reporting obligations on BT and Kcom. This call for inputs is the first step in this project. We welcome a range of views from stakeholders on both issues, focusing on the questions in Section 2.
Our objectives for this project, consistent with our general duty to further the interests of consumers in relevant markets, where appropriate by promoting competition, as set out in the Communications Act 2003, are as follows:
- To maximise benefits to consumers in terms of choice, price and innovation by ensuring greater clarity on cost orientation, thereby improving the effectiveness of competition.
- To maximise benefits to consumers in terms of choice, price and innovation by ensuring that BT's and Kcom's regulatory reporting is fit for purpose, improving transparency and thereby facilitating the development of competition.
The specific questions on which we would welcome input from stakeholders are set out in Section 2. However, the principal questions we are seeking to answer to meet these objectives are:
- Under what circumstances should we impose cost orientation obligations, with what objectives; how should those obligations be interpreted and, once imposed, how should they be applied in practice?
- How should BT's and Kcom's regulatory financial reporting obligations be set to best support our regulatory objectives, taking account of stakeholders' needs and the legitimate interests of the regulated companies (e.g. with regard to confidentiality and proportionality)?