“ 13. Price control and cost accounting obligations 1. A national regulatory authority may, in accordance with the provisions of Article 8, impose obligations relating to cost recovery and price controls, including obligations for cost orientation of prices and obligations concerning cost accounting systems, for the provision of specific types of interconnection and/or access, in situations where a market analysis indicates that a lack of effective competition means that the operator concerned might sustain prices at an 6 excessively high level, or apply a price squeeze, to the detriment of end-users. National regulatory authorities shall take into account the investment made by the operator and allow him a reasonable rate of return on adequate capital employed, taking into account the risks involved. 2. National regulatory authorities shall ensure that any cost recovery mechanism or pricing methodology that is mandated serves to promote efficiency and sustainable competition and maximise consumer benefits. In this regard national regulatory authorities may also take account of prices available in comparable competitive markets.”
“5. Complicated as appeals of this kind to the Tribunal are often likely to be, it may be that the Tribunal will, over time, find it possible to deal with such appeals in judgments which are not so long as those under appeal in the present cases. …The reasoning of Griffiths LJ (as he then was) in Eagil Trust Co Ltd v. Pigott-Brown[1985] 3 All ER 119 at 122, endorsed by the Court of Appeal as being of general application in English v. Emery Reimbold & Strick Ltd[2002] EWCA Civ 605 , [2002] 1 W LR 2409 , applies to such a judgment of the Tribunal as to any other. Griffiths LJ said: "a judge should give his reasons in sufficient detail to show the Court of Appeal the principles on which he has acted and the reasons that have led him to his decision. They need not be elaborate. I cannot stress too strongly that 19 there is no duty on a judge, in giving his reasons, to deal with every argument presented by counsel in support of his case. It is sufficient if what he says shows the parties, and if need be, the Court of Appeal the basis on which he has acted … (see Sachs LJ in Knight v. Clifton[1971] Ch 700 at 721)." 6. The same applies to findings of fact, so that the Tribunal may not need to make a finding on every disputed factual issue. Nor is it always necessary for the Tribunal to set out each party's submissions in detail before explaining its reasons for deciding the case. We therefore express the hope that, in future, it will be possible for the Tribunal to express its findings of fact and its reasoning in more succinct form. Its efforts to do so will have the support of this court, provided always that the essential tasks identified by Griffiths LJ have been fulfilled.”
“It is important to stress that the existence of a dominant position cannot be established on the sole basis of large market shares. As mentioned above, the existence of high market shares simply means that the operator concerned might be in a dominant position. Therefore, NRAs should undertake a thorough and overall analysis of the economic characteristics of the relevant market, before coming to a conclusion as to the existence of significant market power. In that regard, the following criteria can also be used to measure the power of an undertaking to behave to an appreciable extent independently of its competitors, customers and consumers. …”
“Although it might be thought that this may not be the case where a new entrant MNO (with few, if any customers) wishes to sell call termination to a large incumbent network, Ofcom notes that the evidence suggests that BT, the largest purchaser of MCT, regarded the entry of H3G in 2001 as an opportunity for incremental income from its retail customers rather than a potential threat to its own access and origination revenue. In this case BT therefore judged that it had a commercial incentive to purchase call termination services from H3G.”
“3.32 Ofcom is also proposing that BT is not obliged to purchase wholesale narrowband call termination services at any price, but to do so where requested by a PECN and where the terms and conditions offered by that PECN are reasonable. Whether a particular term or condition (including charge) is reasonable will depend on the particular circumstances relating to any decision not to purchase in the context of the need to ensure end-to-end connectivity and may lie within a broader range of outcomes than that which might be considered in the circumstances of SMP. In particular, as Ofcom has to ensure that any charges it imposes are proportionate, it is unlikely to set charges at a level set in the context of addressing a finding of SMP.”
“In resolving a dispute relating to the application of BT’s end-to-end connectivity obligation, Ofcom would consider each dispute on its merits, in the light of the specific facts and circumstances and the arguments put to it by the parties to the dispute, including the reasonableness of any resolution on both parties.”
“… a reasonable charge for BT to purchase MCT with a view to ensuring end-to- end connectivity may be at a price appreciably above the competitive level. As such, if a charge appreciably above the competitive level were in dispute, Ofcom considers it unlikely that it would insist on a strictly cost based charge (such as used in deriving cost benchmarks ... to set efficient regulated charges in [an SMP condition] charge control) ie a charge that was not appreciably above the competitive level.”
“… a purchaser and supplier of mobile call termination, properly apprised as to Ofcom’s approach to dispute resolution, would therefore negotiate on the basis that if a charge appreciably above the competitive level were in dispute, Ofcom would be unlikely to impose a charge for MCT in the context of such a dispute that was not appreciably above the competitive level.”
“ … When determining a dispute as to the price for [call termination], Ofcom will be concerned principally with reasonableness as regards BT, the party that is subject to the obligation in question. Ofcom will accordingly seek to ensure that the price asked of BT for termination is not so high that it would be unreasonable for BT to be expected to purchase at that price; and conversely that BT does not 35 insist on a price that is so low that it cannot reasonably expect termination to be supplied at that price (i.e. in effect a constructive refusal by BT to purchase).”
“If it were a good point then one could expect it to be a frequent if not a universal answer to any attempt to impose ex ante regulation. Any entity in respect of which it was said that it could behave independently of its market counterparts would be likely to say that it could not and would not do so because if it did then it could see that it would attract regulatory intervention. It would therefore argue that it does not in fact have significant market power within the guidance given in Article 14(2) of the Framework Directive. The argument might also be extended into cases of alleged abuse and ex post regulation, where logically it might be thought to apply on the same basis (notwithstanding the different direction in which the facts might be pointing) in relation to allegations of dominance. Thus one would have the paradox: there could never be SMP where one has a vigilant regulator, so ex ante regulation would never be appropriate (or indeed necessary) despite the fact that it could turn out (on the facts) that there was dominance (and abuse) after all. That is not an attractive scenario, and it is one which we would only espouse if we were bound to by authority.”
“In economic terms, it is not appropriate to exclude regulatory obligations that exist independently of a SMP finding on the market under consideration but that can have an impact on the SMP finding on the markets under consideration. From a methodological viewpoint obligations flowing from existing regulation, other 46 than the specific regulation imposed on the basis of SMP status in the analysed market , must be taken into consideration when assessing the ability of an undertaking to behave independently of its competitors and customers on that market.”
“The purpose of a Greenfield approach is indeed to avoid circularity in the market analysis by avoiding that, when as a result of existing regulation a market is found to be effectively competitive, which could result in withdrawing that regulation, the market may return to a situation when there is no longer effective competition. In other words any Greenfield approach must ensure that absence of SMP is only found and regulation only rolled back where markets have become sustainably competitive, and not where the absence of SMP is precisely the result of the regulation in place.”
“98. … In other words, a potentially regulated person cannot claim that it does not have SMP because regulation has procured a situation in which it no longer has it. So long as it is regulation which is bringing about competitive outcomes, the markets are not competitive independently of that regulation. It follows that the potentially regulated person cannot say that it does not have SMP because the threat of regulation means that it does not have the necessary power. That would be circular and illogical. OFCOM relied on this reasoning. 99. Although that Decision turned on a consideration of the effect of regulation on someone other than the person who is the subject of the investigation (the equivalent of BT in the present case) we agree that the reasoning applies as OFCOM says it does. The effect of this is that the possibility of regulation being brought to bear on H3G is a factor that cannot be prayed in aid by H3G as militating against its having SMP. We reiterate that H3G’s submissions would give rise to an illogical and unattractive, if not an unprincipled, position, and we consider them to be wrong. The correct position is as found in the RegTP decision, namely that regulatory obligations on a market counterparty can be taken into account, but not the potential for regulation on the party whose market position is under consideration.”
“138. … (b) The second answer lies in identifying just what the clause 13 mechanism is. It is not actually a full third party arbitral mechanism of the kind one sees in, for example, a rent review clause. The arbiter in clause 13 is the regulator. The regulator’s powers are conferred and constrained by statute, and while Ofcom’s are extensive they do not include the power to be a third party arbitrator. In truth clause 13 does not invoke that latter sort of status. The sort of dispute that clause 13 contemplates is a form of interconnection dispute, which Ofcom would resolve as regulator, not as a third party dispute resolver. Its intervention would therefore be as regulator, and would be a form of regulation. It therefore falls to be disregarded, as a matter of principle, just as Ofcom’s general presence as a regulator with a potential effect on the conduct of the putatively regulated person falls to be disregarded, for the reasons given above. This is the same point that we have considered and dealt with above. Accordingly we do not consider that the Clause 13 mechanism for dispute resolution has any material effect on the question of whether H3G had or has SMP.”
“132. … The possibility of dispute resolution by OFCOM in the future is therefore part of the overall picture which has to be taken into account in assessing whether BT has a real and effective bargaining position that is sufficient to counter the factors which would otherwise point in favour of H3G having SMP. 142. In assessing the position of that counterparty it would be illogical not to look at the effect of regulation (and no-one suggested we should not), so OFCOM were quite correct in doing so in this case. However, as we have observed, the full factual position in this respect must be looked at – one most look at how far the regulation will actually operate in any deemed negotiations. It is in failing to do so that OFCOM erred in its Decision.”
“It is material which would go to an assessment of whether BT had CBP at the time of those negotiations. However we do not think that we need to consider it for that purpose. The decision did not find that there was no CBP at the time of the negotiations. In essence it assumed that there was … but said that it was the future that the Decision had to look to. The extent to which it is necessary to look to those negotiations is therefore limited (though they are not necessarily completely without significance …).”
“140. H3G provided some evidence to OFCOM showing how the latter part of the negotiation went in 2001 and 2002. OFCOM has come to the conclusion that that evidence went only to the negotiations at that time and “did not provide a sufficient indication of how future negotiations with BT would run, given the change in H3G’s circumstances [i.e. it now had a connection as opposed to its negotiating one]”
“141. There is therefore material from the prior negotiation which might be said to have some continuing relevance to what the position would be in any price negotiation between H3G and BT. It is therefore overly-simplistic and wrong to say that the end-to-end connectivity obligation determines the question of CBP. As we have said, we reach no decision on these additional matters, but we consider that the Decision, and the process underlying it, does not seem to have addressed them. Any proper consideration of CBP ought to have done so, and that failure makes the Decision flawed in this respect. It may well be that the circumstances would require a fuller investigation of BT’s position (it is arguably a monopsonist), the possibility of joint dominance, and such things as its relationship with H3G and its attitude and propensity in relation to the protection of the interests of its own customers (bearing in mind the words “and ultimately consumers” in Framework Directive Art 14(2)) when considering the level of termination charges which it was inevitably going to pass on, but we say no more about it because the overall position is not (in the circumstances of this case) one which we are called on to investigate. We do not have the material to do it, and no-one has suggested we should.”
“Ofcom must not, in exercise or performance of any power or duty under this Chapter – (a) set a condition under section 45, or (b) modify such a condition, unless they are satisfied that the condition or (as the case may be) the modification satisfies the test in subsection (2).”
“That test is that the condition or modification is – (a) objectively justifiable in relation to the networks, services, facilities, apparatus or directories to which it relates; (b) not such as to discriminate unduly against particular persons or against a particular description of persons; (c) proportionate to what the condition or modification is intended to achieve; and (d) in relation to what it is intended to achieve, transparent.”
“ 88 Conditions about network access pricing etc. (1) OFCOM are not to set an SMP condition falling within section 87(9) except where-(a) it appears to them from the market analysis carried out for the purpose of setting that condition that there is a relevant risk of adverse effects arising from price distortion; and (b) it also appears to them that the setting of the condition is appropriate for the purposes of-(i) promoting efficiency; (ii) promoting sustainable competition; and (iii) conferring the greatest possible benefits on the end-users of public electronic communications services. (2) In setting an SMP condition falling within section 87(9) OFCOM must take account of the extent of the investment in the matters to which the condition relates of the person to whom it is to apply. (3) For the purposes of this section there is a relevant risk of adverse affects arising from price distortion if the dominant provider might-(a) so fix and maintain some or all of his prices at an excessively high level, or (b) so impose a price squeeze, as to have adverse consequences for end-users of public electronic communications services. (4) In considering the matters mentioned in subsection (1)(b) OFCOM may- (a) have regard to the prices at which services are available in comparable competitive markets; (b) determine what they consider to represent efficiency by using such cost accounting methods as they think fit. …”
“Ofcom is not persuaded by H3G’s argument that, because it has relatively few subscribers, regulation will be of limited net benefit. First, H3G will grow over the period of the control and Ofcom does not consider that the consequent volume of terminated minutes will be insignificant. Second, Ofcom’s analysis of the financial effect on H3G at paragraphs 9.204 et seq. suggests that the proposed remedy will not undermine H3G’s overall financial position and, moreover, H3G’s reduced MCT termination revenue would be small compared to its overall revenues. Therefore, for the reasons argued here and in section 9 Ofcom considers that there are material overall welfare gains from the regulation of H3G.”
“At the outset we should identify the issue to be addressed and the options available to us. In doing so, we should continue to bear in mind the need for options to be linked with our statutory duties. We will start by considering the option of not changing the regulatory framework, either by not introducing regulation or by retaining existing regulation. This option – no new intervention – will generally be the benchmark against which other options are judged i.e. what costs and benefits would be incurred additional to those which would be incurred if there were no new intervention?”
“ … it is also important to recall the circumstances and purpose of Ofcom’s welfare analysis. Ofcom has estimated the welfare gains from regulating call termination by comparing a situation with unregulated (excessive) termination charges against regulated termination charges. This exercise only seeks to derive an order-of-magnitude quantification of the benefits of a more efficient structure of prices and does not include quantification of the benefits to consumers from addressing the other detriments of excessive MCT charges discussed elsewhere in 76 this section. The analysis compares an unregulated termination charge of 23.9ppm (based on an estimated monopoly termination charge) and a regulated termination charge of 5.2 ppm based on the weighted average (by termination volumes) of Ofcom’s proposals for charges set out in Section 9. The assumptions underpinning Ofcom’s welfare analysis are set out in Annex 19. 7.50 The estimated welfare gain amounts to£1.4 billion in 2010/11 and over four years of a hypothetical charge control assuming a smooth industry average glidepath down to the target charge from the monopoly charge amounts to approximately£3.2 billion in present value terms at the beginning of 2007/08. Ofcom reiterates that the purpose of this exercise is to derive an order of magnitude estimate and not a precise estimate of the overall gains from regulation compared to no regulation (or threat of regulation). Even if the unregulated termination charge were significantly less and fell mid-way between the potential monopoly level and the regulated level, the welfare gains remain positive and large. In this sensitivity, the welfare gain amounts to£0.4 billion in 2010/11 which translates to a gain of£0.9 billion in present value terms.”
“33. I cannot understand how this approach might be thought to favour competition. The Decisions benefit the incumbents at the expense of H3G, the new entrant operator which is the one operator least able to deal with such an effect and still compete effectively. The result will be a lessening of competition, higher retail prices and delays to the wider adoption of mobile broadband technology. 34. The current position is that, in circumstances where [mobile number portability] is not effective, the regulatory arrangements are structurally tilted in favour of the incumbent MNOs because H3G, the new entrant, is subject to a price control and is therefore obliged to make payments to them which they can use to fund marketing and other strategies to maintain their share and defeat H3G’s attempts to win customers from them. This seems illogical to me.”
“H3G’s traffic imbalance has shifted over the course of 2006 and 2007 and, as regards the change in outbound minutes, I believe that has been in large part due to withdrawal of ‘Double Minutes, Double Text’.”
“First, H3G will grow over the period of the control and Ofcom does not consider that the consequent volume of terminated minutes will be insignificant. Second, Ofcom’s analysis of the financial effect on H3G … suggests that the proposed remedy will not undermine H3G’s overall financial position and, moreover, H3G’s reduced MCT termination revenue would be small compared to its overall revenue. Therefore for the reasons argued here and in section 9 Ofcom considers that there are material welfare gains from the regulation of H3G.”
“ … it is not efficient for this competition to be based on excessive charges for MCT. For the same reason, Ofcom does not accept H3G’s view that increased competition in mobile markets, founded on the unique ability of one player with SMP to set MCT charges without regulatory constraints, should be pursued as a regulatory objective.”