On 22 September 2005 British Telecommunications plc ("BT") offered, and Ofcom accepted, a set of undertakings pursuant to section 154 of the Enterprise Act 2002 (the "Undertakings"). The Undertakings included mechanisms to allow BT and Ofcom to agree exemptions from the Undertakings. The objective of this Consultation is to seek views from interested parties on BT's request for an exemption from the Undertakings for certain high bandwidth fibre-based access products.
This consultation seeks comment on BT's request for an exemption from the requirement in the Undertakings to provide high bandwidth (i.e., bandwidths above 1 Gbit/s) Ethernet access services and optical spectrum access services that are supplied by Openreach to other Communication Providers ("CPs") and BT's downstream divisions under Equivalence of Inputs ("EoI"). These services are typically used to provide high-bandwidth dedicated connections between two sites (for example, corporate sites) and satisfy the growing demand for high bandwidth applications such as video conferencing, data centre connectivity and the extension of internal (private) networks. The services within the scope of the proposed exemption are (as they are defined in the request for exemption) Wholesale Extension Service ("WES), Wholesale End-to-End Service ("WEES"), Optical Spectrum Access ("OSA") and Optical Spectrum Extended Access ("OSEA") above 1 Gbit/s. All these services are offered by Openreach.
BT has requested an exemption because it considers these services to be supplied in a competitive market and it considers that Openreach having to offer these services on an EoI basis restricts its flexibility to compete effectively to the detriment of itself, CPs and their end users. In the absence of EoI obligations, Openreach would be able to negotiate prices and contractual terms on an individual basis.
We are proposing to grant a temporary exemption to Openreach. Based on information submitted by Openreach concerning the competitive conditions under which these services are offered, we have reached a provisional view that Openreach should be able to set prices and terms and conditions without applying EoI. We do not consider (based on the evidence received so far) that this will have a significant impact on the ability of other CPs to compete in the high bandwidth access connections market and the overall operation of the Undertakings. We consider that the proposed exemption would benefit other CPs and end-customers by providing greater choice in terms of pricing and contractual flexibility. We are inviting stakeholders' views on the proposals set out in this document.
If we confirm our proposal to grant the temporary exemption, we will reach a view on the appropriateness of these services being exempted from EoI obligations beyond the end of the period of our proposed temporary exemption, after we have reviewed the extent of competition in the supply of these services in the recently commenced Review of the Business Connectivity Market ("BCMR").
Although any future decision will be taken in light of the evidence available at that time, it is likely that we would not extend the exemption if one or more services within the scope of this proposed exemption fall in a market where BT is found in the BCMR to have significant market power ("SMP"). However, it does not follow that a finding of no SMP means that the exemption should be extended. Where BT is found not to have SMP in a market which includes one or more of these services, we would expect to consider the outcome of the BCMR alongside whether continuing with an exemption undermines the overall effectiveness of the Undertakings. The Undertakings, for example, include a number of structural and governance commitments by BT which were (and are) essential elements of Ofcom's decision to accept the Undertakings.
The proposed exemption does not apply to high bandwidth backhaul services including Backhaul Extension Service ("BES"), Ethernet Backhaul Direct ("EBD"), Openreach Backhaul Network Service ("OBNS") and Broadcast Access which would continue to be supplied by Openreach on an EoI basis.