Communication to the Commission and Other National Regulatory Authorities (Nras) of Intended

Communication to the Commission and other National Regulatory Authorities (NRAs) of intended measures under Article 7(3) of Directive 2002/21/EC

The Office of Communications (“Ofcom”)are proposing to set conditions and make various changes to directions relating to BT’s and KCOM’s financial reporting obligations in respect of various markets where they have been found to have significant market power in accordance with Article 16 of Directive 2002/21/EC.
Ofcom hereby notifies the European Commission and the NRAs of other Member States of its intended draft measures in accordance with Article 7(3) of the Framework Directive.
Ofcom’s proposed conditions (and changes to directions to accompany those conditions) are as described in the relevant section below and set out in the attached Summary Notification form (see Annex A) (full details are set out in the attached Consultation Document entitled ‘Changes to BT and KCOM’s regulatory and financial reporting 2010/11 update’).
Ofcom’s proposed changes to other directions are as described in the relevant section below. They are changes to technical details of previously imposed regulatory remedies whose notification on the Short Notification Form would usually be appropriate and in relation to which the attached Summary Notification form (Annex A)is not generally applicable or appropriate. Accordingly, the information about proposed changes to these directions, that would have been included in a Short Notification Form (section 3), is set out below and in the attached Annex B (Short Form Notification annex).
Ofcom are also conducting a national consultation under Article 6 of Directive 2002/21/EC at the same time as notifying the European Commission and other NRA of the intended measures.
Responses to this consultation are invited and may be sent to Rachel Wingfield, International Policy Manager, Ofcom at by 31 March 2011.

Conditions

Ofcom have carried out analyses of the market for wholesale broadband access (“WBA”) in the United Kingdom in accordance with Ofcom’s obligations under Article 16 of Directive 2002/21/EC on a common regulatory framework for electronic communications networks and services (the “Framework Directive”).
On 20 August 2010, Ofcom notified the European Commission and the NRAs of other Member States of Ofcom’s proposed draft measures in relation to the WBA market, pursuant to Article 7(3) of the Directive 2002/21/EC (see Case UK/2010/1123)(the “August 2010 notification”).
In the August 2010 notification, Ofcom identified the following provisional wholesale broadband access services markets for the purposes of provisionally designating BT as an undertaking having SMP under Article 16 of the Framework Directive:

(i)Market 1 (those areas in the UK covered by exchanges where BT is the only operator); and

(ii)Market 2 (those areas in the UK covered by exchanges where there are two operators and exchanges where there are three operators but where BT’s market share is greater than or equal to 50 per cent).

Ofcom also identified the following provisional wholesale broadband access services market for the purposes of provisionally designating KCOM as an undertaking having SMP under Article 16 of the Framework Directive:

(i)Hull area

In the August 2010 notification, Ofcom also reached the provisional conclusions:

(i)in relation to the proposed services markets set out in paragraph 9(i)-(ii), to impose certain SMP services obligations on BT as a result of finding that the markets remain not effectively competitive; and

(ii)in relation to the proposed services market set out in paragraph 10(i), to impose certain SMP services obligations on KCOM as a result of finding that the market remains not effectively competitive.

Having conducted a national consultation on these matters under Article 6 of Directive 2002/21/EC and taken account of the responses to that consultation, and having received, and taken utmost account of, comments from the European Commission in respect of the above-mentioned draft measures and proposals, Ofcom decided to adopt the proposals referred to in paragraphs 9 - 11 above, with no material changes. On 3 December 2010, Ofcom published a statement to that effect (“the WBA December 2010 Statement”)[1] and communicated to the European Commission its adopted measures in accordance with Article 7(5) of Directive 2002/21/EC (see Case UK/2010/1123).
Amongst the SMP services obligations Ofcom decided to impose on BT, as described in paragraph 11(i) above, were cost accounting and accounting separation obligations in relation to both Market 1 and Market 2. Amongst the SMP services obligations Ofcom decided to impose on KCOM, as described in paragraph 11(ii) above, was an accounting separation obligation in the WBA market in the Hull area.
Ofcom also set out in the WBA December 2010 Statement that Ofcom would consult further on proposals for the detailed legal measures under which BT should meet its accounting separation and cost accounting obligations in Market 1 and Market 2 and KCOM should meet its accounting separation obligation in the Hull Area.
Ofcom’s proposed conditions, and changes to directions that accompany them, set out in the attached Summary Notification form (see Annex A and the attached Consultation Document entitled ‘Changes to BT and KCOM’s regulatory and financial reporting 2010/11 update’) are the draft measures by which it proposes BT and KCOM should meet those obligations.
Ofcom are satisfied there has been no material change to the relevant markets since the relevant market power determinations were made.

Directions

The changes to directions that Ofcom are proposing to make are changes to directions under various financial reporting obligations previously imposed on BT in respect of various markets where it has been found to have significant market power in accordance with Article 16 of Directive 2002/21/EC.

These proposals are supplementary to the market analysis procedure undertaken by Ofcom (or, previously, Director General of Telecommunications) in accordance with Article 16 of Directive 2002/21/EC, and concern the existing and ongoing financial reporting obligations necessary to implement the remedies based on the results of such procedures in relation to various markets.

Ofcom are satisfied there has been no material change to the relevant markets since the relevant market power determinations were proposed, made or last modified.

The table in the Executive Summary on pages 2 and 3 of the attached Consultation Document gives summary details of the proposals and the markets impacted. The proposals are for changes to BT’s existing and ongoing regulatory financial reporting requirements that are necessary to implement the remedies identified by market reviews.

The relevant market reviews include the following Ofcom concluded in 2009 and 2010:

(i)The review of wholesale broadband access markets (published on 3 December 2010) (The relevant notification to the Commission is at and

(ii)The fixed narrowband wholesale services market review (documents published on 15 September 2009 and 5 February 2010) (The relevant notifications to the Commission are at and

The proposed changes to directions consist of changes to technical details of a remedy and do not change the nature or the general scope of a remedy for the following reasons. Those remedies have already been set by the relevant market reviews that have previously been consulted on and notified to the Commission. The proposals are, as stated above, for changes to existing reporting obligations, primarily for changes which are necessary to implement the remedies identified by market reviews.

This document is the Article 7 notification of the draft measures.

The internet reference for the draft measures is A copy of the Consultation Document containing the draft measures (and available at that reference) is also attached to this notification.

None of the other categories of information in the Short Notification Form (sections 1, 2 and 4) is applicable to the proposed changes to directions.

David Brown, Ofcom

16/02/2011

Annex A

Standard Notification Form

Market definition

Please state where applicable:-

1.1 The relevant product/service market. Is this market mentioned in the Recommendation on relevant markets? / Wholesale broadband access (Market 5 in the Recommendation on relevant markets).
1.2 The relevant geographic market / Four separate geographic markets are defined: In The UK excluding the Hull Area, the geographic market is defined on the basis of the number of operators present in each of BT’s exchange areas (LLU operators and Virgin Media when subscriber coverage is 65% or more).

The Hull area: those areas covered by exchanges where KCOM is the only operator.
Market 1: those areas in the UK covered by exchanges where BT is the only operator.
Market 2: those areas in the UK covered by exchanges where there are 2 or 3 operators.
Market 3: those areas in the UK covered by exchanges where there are 4 or more operators.

1.3 A brief summary of the opinion of the national competition authority where provided. / Not applicable. Ofcom functions as National Competition Authority in UKtelecommunications matters.
1.4 A brief overview of the results of the public consultation to date on the proposed market definition (e.g. how many comments were received, which respondents agreed with the proposed market definition, which respondents disagreed with it) / Ofcom received 16 responses to the Consultation. The responses were summarised in the documententitled ‘Review of the Wholesale Broadband Access Market: second consultation on market definition, market power assessment and remedies’ provided to the Commission with the August 2010 notification (see Case UK/2010/1123 and internet reference:

1.5 Where the relevant market is different from those listed in the Recommendation on relevant markets, a summary of the main reasons justifying the proposed market definition by reference to Section 2 of the Commission guidelines on market analysis and the assessment of significant market power under the Community regulatory framework for electronic communications and services[[1]], and the three main criteria mentioned in recitals 5 to 13 of the Recommendation on relevant markets and Section 2.2 of the accompanying Explanatory Note.[[2]] / Not applicable.

Designation of undertakings with significant market power

Please state where applicable:

2.1 The name(s) of the undertaking(s) designated as having, individually or jointly, significant market power.
Where applicable, the name(s) of the undertaking(s) which is (are) considered to no longer have significant market power. / BT is designated as holding SMP in wholesale broadband access in Markets 1 and 2.
KCOM is designated as holdingSMP in wholesale broadband access in the Hull Area.
2.2 The criteria used to designate an undertaking as having significant market power, individually or jointly, or not. / To assess whether a firm has SMP Ofcom looked at the following factors in particular in the wholesale broadband access market review:

Market growth and market shares;
Future potential market shares;
Barriers to entry and expansion, including the impact on number of operators present;
Economies of scale and scope;
Excessive pricing (and profitability); and
Countervailing buyer power.

We also considered:

Overall size of the undertaking;
Technological advantages or superiority;
Vertical integration; and
Price trends and pricing behaviour.

2.3 The name of the main undertakings (competitors) active in the relevant market / Market 1
On the basis of the market definition adopted, there are no other operators active in this market apart from BT.
Market 2
The other main competitors to BT are TalkTalk and (for some exchanges) Virgin Media and Sky.
Hull area
There are no other competitors active in this market apart from KCOM.
2.4 The market shares of the undertakings mentioned above and the basis for calculation of market share (e.g., turnover, number of subscribers) / Market shares based on number of subscribers (June 2010):
Market 1
BT: 98.7% (Virgin Media has a 1.3% market share due to the marginal overlap of its network to BT’s exchange area).
Market 2
BT: 64.7%
The nearest competitor has a market share of just over 20%.
Hull area
There are no other competitors active in this market.

Please provide a brief summary of:-

2.5 The opinion of the national competition authority, where provided. / Not applicable. Ofcom functions as National Competition Authority in UK telecommunications matters.
2.6 The results of the public consultation to date on the proposed designation(s) as undertaking(s) having significant market power (e.g., total number of comments received, numbers agreeing/disagreeing) / Ofcom received 16 responses to the Consultation. The responses were summarised in the document entitled ‘Review of the Wholesale Broadband Access Market: second consultation on market definition, market power assessment and remedies’ provided to the Commission with the August 2010 notification (see Case UK/2010/1123 and internet reference:

Regulatory obligations

Please state where applicable:

3.1 The legal basis for the obligations to be imposed, maintained, amended or withdrawn (Articles 9 to 13 of Directive 2002/19/EC) / As far as relevant to this notification, the following remedies are proposed:
Market 1 (BT)

Cost accounting (Article 13)
Accounting separation (Article 13)

Market 2 (BT)

Cost accounting (Article 13)
Accounting separation (Article 13)

(Ofcom also proposes changes to directions 3 and 4, as set out in the attached Consultation Document, to accompany these obligations)
Hull area (KCOM)

Accounting separation (Article 13)

3.2 The reasons for which the imposition, maintenance or amendment of obligations on undertakings is considered proportional and justified in the light of the objectives laid down in Article 8 of Directive 2002/21/EC (Framework Directive). Alternatively, indicate the paragraphs, sections or pages of the draft measure where such information is to be found. / The reasons are set out inthe attached ConsultationDocument entitled ‘Changes to BT and KCOM’s regulatory and financial reporting 2010/11 update,’ in Section4 and Annex 6 in particular.
3.3 Where the remedies proposed are other than those set out in Articles 9 to 13 of Directive 2002/19/EC (Access Directive), please indicate what «exceptional circumstances» within the meaning of Article 8 (3) of that directive justify the imposition of such remedies. Alternatively, indicate the paragraphs, sections or pages of the draft measure where such information is to be found. / Not applicable.

Compliance with international obligations

In relation to the third indent of the first subparagraph of Article 8 (3) of Directive 2002/19/EC (Access Directive), please state where applicable:

4.1 Whether the proposed draft measure intends to impose, amend or withdraw obligations on market players as provided for in Article 8(5) of Directive 2002/19/EC. / Not applicable
4.2 The name(s) of the undertaking(s) concerned / Not applicable
4.3 What international commitments entered into by the Community and the Member States are to be met. / Not applicable

ANNEX B – Annex 1 to Short Notification Form

ANNEX I

Short Notification Form

The short notification form specifies the summary information to be provided by national regulatory authorities to the Commission when notifying draft measures under the short notification procedure in accordance with Article 7 of Directive 2002/21/EC.

It is not necessary to provide a copy of the draft regulatory measure or to attach any other document to the short notification form. However, it is necessary to indicate the Internet reference through which the draft measure can be accessible in the short notification form.

1. One or several markets which has/have been removed from or have not been previously listed in the Recommendation on relevant markets is/are found to be competitive or not to meet the three criteria
Please briefly describe the content of the notified draft measure. In particular, please refer to the relevant market concerned and the reasons why you consider that the market is effectively competitive or the three criteria are not met. / NA
Please indicate the Article 7 notification reference of the previously notified draft measures. / NA
Does the NCA agree with the proposed draft measure as regards the analysis of the relevant market? / YesNo
If no, please outline reasons:
NA
Internet reference to the draft measure / NA
Comments / NA
2. One or several markets which was/were found to be competitive in a previous market review is/are still competitive
Please briefly describe the content of the draft measure, indicating the relevant market concerned. / NA
Please indicate the Article 7 notification reference of the previously notified draft measures. / NA
Are there changes to the market definition, as compared with previously notified draft measures? / YesNo
If yes, please describe briefly
NA
Does the NCA agree with the proposed draft measure as regards the analysis of the relevant market? / YesNo
If no, please outline reasons:
NA
Internet reference to the draft measure / NA
Comments / NA
3. Changes to technical details of a previously imposed regulatory remedy.
Please summarize the notified changes to the remedies indicating the relevant market concerned / The table in the Executive Summary on pages 2 and 3 of the attached Consultation Document gives summary details of the proposals and the markets impacted. The proposals are for changes to BT’s existing and ongoing regulatory financial reporting requirements that are necessary to implement the remedies identified by market reviews.
The relevant market reviews include the following Ofcom concluded in 2009 and 2010:
1)The review of wholesale broadband access markets (published on 3 December 2010) (The relevant notification about which to the Commission is at and
2)The fixed narrowband wholesale services market review (documents published on 15 September 2009 and 5 February 2010) (The relevant notifications to the Commission are at
/registeredsnotifications/uk20090973/
narrowband_marketspdf/_EN_1.0_&a=d and
Please justify your conclusion that the measure consists of a change on a technical detail of a remedy and does not change the nature or the general scope of a remedy / The remedies have already been set by the relevant market reviews that have previously been consulted on and notified to the Commission. The proposals are, as stated above, for changes to existing reporting obligations, primarily for changes which are necessary to implement the remedies identified by those market reviews.
Please indicate the Article 7 notification reference of the previously notified draft measures. / This document (and the cover note) is the Article 7 notification of the draft measures.
Internet reference to the draft measure /
Comments
4. Imposition on further operators of remedies already analysed and notified in relation to other undertakings that are similar as regards their customer base or total turnover in telecoms markets, without changing the principles applied by the NRA in the previous notification.
Please briefly summarize the content of the draft measure, indicating the relevant market concerned. / NA
Please indicate the Article 7 notification reference of the previously notified draft measures. / NA
Please list the operators on whom this draft measure imposes obligations: / NA
Does the NCA agree with the proposed draft measure as regards the analysis of the relevant market? / YesNo
If no, please outline reasons
NA
Internet reference to the draft measure / NA
Comments / NA

[1] “Review of the wholesale broadband access market: Statement onmarket definition, market power determinations and remedies,” internet reference