This statement and determination (the “Determination”) sets out our resolution to the dispute brought by TTG against Openreach (collectively the “Parties”), relating to the price set by Openreach for its wholesale MPF rental from 1 April 2011 (the “Dispute”). Please refer to the Glossary in Annex 2 for defined terms.
MPFs (metallic path facilities) are BT’s copper lines between the local telephone exchanges and the customer premises. These can be rented by other communications providers to connect to their own networks and provide broadband and voice services to end users.
In 2010, Ofcom reviewed the market for wholesale local access (“WLA”) and concluded that BT has SMP in the WLA market in the UK excluding the Hull Area (the “2010 WLA statement”). In the 2010 WLA statement Ofcom imposed a number of SMP Conditions on BT, including a requirement to provide network access on fair and reasonable terms (SMP Condition FAA1)1 and a cost orientation obligation (SMP Condition FAA4).
The most recent charge control, set in May 2009, ceased to have effect from 1 April 2011. In December 2010 Openreach made a voluntary commitment that from 1 April 2011 until 31 March 2012 (or until the next Ofcom charge control starts, whichever is sooner) it would charge no more than £91.50 for MPF rental (the “Openreach MPF rental price”). At the same time, Ofcom also concluded that a charge control should be imposed and explained that it would consult further on the terms of that charge control.
The £91.50 Openreach MPF rental price is at a midpoint between the MPF rental price for 2010/11 and the forecasted 2012/13 costs for MPF determined in the previous charge control. Ofcom’s stated view at the time was that Openreach’s approach to setting the Openreach MPF rental price was “a reasonable approach to take”.
Ofcom has consulted on proposals for a next charge control. The March 2011 Consultation included proposals on the range for the MPF rental charge to run until 31 March 2014. The proposals set out a range for MPF rental of £89.40 to £92.00, with a base case of £90.70. On 18 May 2011, we published a revised version of the March 2011 Consultation and the underlying models to correct for a number of errors in the original consultation. The corrected proposals set out a range for MPF rental of £88.70 to £91.30, with a base case corrected downwards from £90.70 to £90.00.
We reconsulted on the proposals for the MPF rental charge in the November 2011 Consultation, which revised the consultation proposal to reflect our understanding of RPI and a restatement of the costs stacks in light of the previously incorrect attribution of £100 million of Information Systems projected expenditure. We expect to publish our conclusions on the LLU and WLR charge controls in the first quarter of 2012 and intend to impose an SMP Condition setting a charge control on a forward look basis from 1 April 2012.
While a charge control is not currently in place, Openreach’s charge for MPF rental is still subject to SMP Conditions FAA1 and FAA4.
In TTG’s Submission, TTG argued that Openreach’s MPF rental price should be no more than £90.00, based on the “base case” figure in the March 2011 Consultation. In its response to our Provisional Determination, TTG revised this figure to “about £88.70” based on its assessment of the information published in the November 2011 Consultation. TTG also suggested that Ofcom could require the Openreach MPF rental price to be set at £88.70 going forward.
In effect, TTG is asking us retrospectively to set the Openreach MPF rental price for the period between 1 April 2011 and 31 March 2012 on the basis of our forward looking assessment relating to the charge control which is to apply from 1 April 2012. TTG argues that we should do this on the basis that the Openreach MPF rental price is not compliant with SMP Condition FAA1 (fair and reasonable) or SMP Condition FAA4 (cost orientation). TTG also requests that we exercise our discretion to require repayments for overpayments made.