Dispute between Verizon and BT relating to BT‘s charges for WES

This document (the Provisional Conclusions) sets out for comment the main elements of our provisional reasoning and assessment of the matters in dispute.

This dispute (the Dispute), brought by Verizon against BT (collectively the Parties), relates to BTs charges to Verizon for certain Wholesale Extension Services (WES), which are types of Ethernet services. Verizon alleges that between 1 April 2006 and 31 March 2011 (the Relevant Period) BT failed to comply with its relevant cost orientation obligation (SMP Condition HH3.1), with the result that BT overcharged Verizon for the following WES services:

WES/WEES 10 rental (including Local Reach and Managed variants);

WES/WEES 100 rental; and

WES/WEES 1000 rental (including LAN/SAN and Extended Reach variants).

Verizon considers that BT should be required to repay the amount overcharged, plus interest.

We are already considering all of the services that are in dispute between BT and Verizon in resolving the Disputes between each of Sky, TalkTalk and Virgin Media and BT regarding BTs charges for Ethernet services (CW/01055/08/10) (the Ethernet 1 disputes) and the Dispute between Cable & Wireless and BT about BTs charges for Ethernet services (CW/01708/11/11) (the Ethernet 2 dispute). These disputes concern the level of BTs charges for certain WES and Backhaul Extension Services (BES) services over periods between 24 June 2004 and 31 July 2009 (Ethernet 1 disputes) and between 1 April 2006 and 31 March 2011 (Ethernet 2 dispute).

Where Verizon is in dispute with BT about the same services in the same years as we are considering in the Ethernet 1 and/or Ethernet 2 disputes, we have reached a consistent provisional conclusion on whether BT has overcharged Verizon, except in relation to WES1000 in 2010/11 (see paragraph 1.8 below). As set out in Table 1.1 below, Ofcom has reached provisional conclusions in the Ethernet 1 and/or the Ethernet 2 disputes in relation to whether BT overcharged for WES100 rental and WES1000 rental over the whole of the Relevant Period, and in relation to whether BT overcharged for WES10 rental in 2008/09.

Where Verizon is in dispute with BT in relation to years that we are not already considering, we are proposing to adopt the same approach to assessing overcharging that we have followed in the Ethernet 1 and Ethernet 2 disputes. In the Ethernet 1 disputes we analysed revenue and cost data for WES10 rental for the period 2006/07 to 2009/10 but we only reached a provisional conclusion in relation to 2008/09 as the service was only in dispute in this year. We have not previously analysed financial data for WES10 rental in 2010/11.

Accordingly, much of the analysis in our Draft Determinations of the Ethernet 1 disputes (PDF, 1.7 MB) (the Ethernet 1 Draft Determinations) and Provisional Determination of the Ethernet 2 dispute (PDF, 919.3 KB) (the Ethernet 2 Provisional Determination) is also relevant to this Dispute and we refer to those documents throughout these Provisional Conclusions. Stakeholders are invited to comment on the Ethernet 1 Draft Determinations and Ethernet 2 Provisional Determination by 5pm on 20 April 2012.

As set out in Table 1.1 below, we provisionally concluded in the Ethernet 2 Provisional Determination that BT overcharged customers for WES1000 rental services in 2010/11. BT has since provided us with further information in relation to the adjustment for development costs that we proposed to make in the Ethernet 2 Provisional Determination. Following consideration of that information, we provisionally conclude in these Provisional Conclusions that we should not make an adjustment for development costs in 2010/11. Based on this revised financial information, we provisionally conclude that BT did not overcharge for WES1000 rental in 2010/11. We discuss the new information further at paragraphs 5.47-5.49.

Table 1.1 Provisional conclusions in Ethernet 1 Draft Determinations and/or Ethernet 2 Provisional Determination