“Within the provision of SFV Services there are, according to the CR, two customer groups. The first consists of Voice Only Customers (“VOCs”). A VOC buys an SFV service and does not buy a broadband service from either the same or any other provider. As at 2019, there were 1.2m such customers, representing about 5% of total residential customers. The second customer group encompasses Split Purchase Customers (“SPCs”). As at 2019, there were 1.1m SPCs. Such customers also take a broadband service pursuant to a separate contract, either with BT or with some other provider. What they do not have is a “bundle”, i.e. a package of telephone and broadband services provided together by the same supplier under one contract. The market for bundles, comprising voice and broadband, and which the CR says is separate from the SPC market, is known in the industry as “Dual Play” (“DP”). There are also several other bundles sold alongside voice by BT and others, including services such as TV, mobile etc.”
“For our part, and notwithstanding the flexibility open to a court or competition authority as to where to take into account the question of economic value, we consider the approach taken by the parties to be a helpful one. This is for two reasons. First, it enables the Limb 1 exercise, complex and challenging as it may be, to focus on the linear process of deciding (a) the relevant competitive benchmark, (b) the excess of the price (if any) over that benchmark, and (c) whether such excess is significant and persistent (for the latter, see paragraphs 54-55 below). One would perhaps hesitate to describe such a process as “mechanical” where the underlying questions can be the subject of hotly contested expert evidence and where they involve various value judgments, and moreover where there is a margin of appreciation afforded, at least to a competition authority. Nonetheless, we consider that it is, from an analytical point of view, “cleaner” and more efficient if the question of economic value can be considered as part of the Limb 2 unfairness exercise which, on any view, is clearly less “mechanical” than the Limb 1 exercise, and where a multiplicity of different factors can be taken into account.”
“The Court has already clarified that, although the importance of the market shares may vary from one market to another, the possession, over a long period, of a very large market share constitutes in itself, save in exceptional circumstances, proof of the existence of a dominant position (Hoffman-La Roche v Commission, paragraph 41) and that market shares of more than 50% constitute very large market shares (Case AKZO v Commission, paragraph 60).”
“Ground 1: The CAT erred in effectively disregarding BT’s entirely voluntary failure to produce relevant factual evidence on the indirect costs of SFV Services, in that (i) contrary to clear authority, and despite its criticisms of BT in this connection, the CAT, as it stated in J666, failed to give any significance to, or to draw adverse inferences from, BT’s failure to produce such evidence although it could have done so at a cost which was comparatively “modest” (J703); (ii) the CAT compounded this error by wrongly assuming that the burden of proof was on the CR rather than recognising the heavy evidential burden on BT (e.g. J777 and J904); and (iii) it was thus inappropriate to give much, if any, weight to the evidence of Dr Jenkins who was called as an expert witness by BT to “fill the gap” caused by BT’s failure to produce such evidence. Ground 2: When deciding in J906 that 40% of BT’s common costs were attributable to SFV Services, the CAT relied on the so-called Stand-Alone Costs Combinatorial analysis (“SAC Combi”), which was (i) irrational, as the CAT had found that the SAC Combi was unreliable for a number of reasons (J842, 844, 855, 856 and 874); (ii) inconsistent with its endorsement of the evidence of the CR’s expert Mr Duckworth that the use of SAC Combi was inconsistent with the CAT’s decision in PPC (J662 and 864); and (iii) on a basis which was unreasoned and unexplained. Ground 3: When considering whether BT’s excessive pricing bore a reasonable relation to economic value, the CAT: (a) wrongly focussed in J933-934 on the irrelevant fact that the excessiveness of the price charged by BT was “dramatic[ally]” different from that alleged by the CR”; (b) failed to address the relevant fact that the excess was substantial (25 to 49.9%), greater than in some other cases where unfairness was established; (c) failed to focus on a centrally relevant question, namely whether the SFV customers would have been prepared to pay excessive prices; (d) seriously misdirected itself in a number of other respects, namely: (i) adopting the willingness to pay fallacy – a fallacy which has been highlighted by the Court of Appeal (J960-961); (ii) assessing the evidence on switching on the basis of inconsistent reasoning (J1099-1134); (iii) misdirecting itself as to the meaning of the new concept of “distinctive value” (J8300); (iv) in its partially wrong and partially unexplained treatment of the Gives (J963-1032); and (v) in its partially wrong and partially unexplained treatment of brand value (J1135). Ground 4: The CAT erred in holding that it could not award compound interest.”
“703. … Given the sums at stake here, such an exercise might be regarded as involving only modest costs and not disproportionate. … 704. Clearly, the only party which could have produced that information was BT. It did not do so.”
“216. The legal burden lies on the operators of the schemes to establish that the merchants have recovered the costs incurred in the MSC. But once the defendants have raised the issue of mitigation, in the form of pass-on, there is a heavy evidential burden on the merchants to provide evidence as to how they have dealt with the recovery of their costs in their business. Most of the relevant information about what a merchant actually has done to cover its costs, including the cost of the MSC, will be exclusively in the hands of the merchant itself. The merchant must therefore produce that evidence in order to forestall adverse inferences being taken against it by the court which seeks to apply the compensatory principle.”
"First, if it is found that the destruction of the evidence was carried out deliberately so to as hinder the proof of the plaintiff's claim, then such finding will obviously reflect on the credibility of the destroyer. In such circumstances it would enable the Court to disregard the evidence of the destroyer in the application of the principle... Second, if the Court has difficulty in deciding which party's evidence to accept, then it would be legitimate to resolve that doubt by the application of the presumption. But, thirdly, if the judge forms a clear view, having borne in mind all the difficulties which may arise from the unavailability of material documents, as to which side is telling the truth, I do not accept that the application of the presumption can require the judge to accept evidence he does not believe or to reject evidence he finds to be truthful."
"It is certainly a maxim that all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted."
“We should add that in this context, there is no Common Costs Starting Point figure from Mr Duckworth which can feed into the analysis here. This is because the RFS contains no information on the split between incremental and common costs, and neither Mr Duckworth nor Mr Parker provided any estimation of BT Consumer common costs except to argue that they were very low. For the reasons given above, we do not accept that they were very low.”
“663. As set out above, and save on the question of direct costs, the methods employed by Mr Duckworth on the one hand and Dr Jenkins on the other, to reach a competitive benchmark are very different. Each model has been formulated and explained in considerable detail. 664. That said, in oral closing arguments, Mr Beard KC somewhat downplayed the significance of Dr Jenkins’ SAC Combi test by characterising it as simply a sense-check to show that the RFS method was clearly wrong. 665. While we must consider these competing methods in detail, we do accept the proposition that if the RFS methodology is fundamentally or inherently defective, then the CR’s case on Limb 1 is not going to be “saved”, as it were, because the SAC Combi methodology is also defective. This observation recognises therefore that the CR has the burden of proof. 666. On the other hand, we also recognise that in relation to a number of arguments deployed by BT as to the inadequacy of the RFS methodology, it is important to ascertain whether such arguments are essentially speculative in circumstances where BT, had it so wished, could have adduced evidence of its own on the point but did not do so. We refer to this in paragraphs 676, 693, 703-704 and 715 below. Indeed, the CR invites us to draw appropriate adverse inferences due to the failure of BT to adduce relevant evidence - see paragraph 371 of its Closing. We do not think it necessary or appropriate to draw adverse inferences as such from the absence of such evidence. The simple point is that BT could have adduced relevant evidence and it did not, so such evidence is simply not there. 667. For the above reasons, it makes sense, first to consider the RFS methodology and the criticisms made of it and then, in the light of that, the SAC Combi methodology.”
“898. Instead, and perhaps unsurprisingly, we considered that, because each side’s methodology contained a number of problems, it is necessary to strike a balance in terms of the outcome that reflects the weight which we consider should be given to each methodology in respect of: (1) the starting point for common costs, being the proportion of BT Consumer’s total indirect costs that should be represented by common costs (“the Common Costs Starting Point”); (2) the proportion of such common costs that should be borne by SFV Services (“the SFV Services Common Costs Contribution”); and (3) the application of the 13.5% margin on the total costs of sale (“Application of Margin”).”
“In our judgment, the appropriate Common Costs Starting Point is£250m . This recognises the problems with Dr Jenkins’ approach which mean that in our view, even her low scenario common costs figure is too high.”
“37. We did face some difficulties with the economic expert evidence. This is because, in the case of many areas of dispute, the methodologies employed by each of the opposing experts were quite different. Perhaps because of this, at various points each party submitted that the other party’s line of analysis should be rejected entirely. As will be seen, for the most part, we did not rule out a line of reasoning as simply illegitimate per se but rather took account of possible defects so that our approach then blended the outcomes of the various models so to reach the appropriate outcome. Sometimes, for example with Dr Jenkins, she would produce a set of alternative outcomes or “sensitivities” which represented what, for her, was a more “conservative” outcome than her primary outcome. This, at least, gave us some alternative views to consider. In addition, on occasion, each side’s experts would “run” the other side’s expert’s analysis to see if it altered their outcome or not. Finally, and at our request, both sides produced alternative analyses using different figures for the purpose of the Limb 1 exercise. Here, that produced by the CR contained somewhat more variables than that produced by BT. All of this was useful, but it did not remove entirely the need, as we saw it, to consider outcomes that were not directly the product of either side’s approach. This is perhaps inevitable in cases of this kind where sets of figures, percentages and comparisons are so important and which are therefore highly fact and expert opinion sensitive. 38. As for the experts themselves, as with BT’s lay witnesses, this is not a case where one side’s expert can be criticised as generally lacking credibility or relevant experience. All of the experts, but particularly Mr Parker and Mr Duckworth for the CR, and Dr Jenkins for BT, are highly experienced, both in their fields and in giving evidence to tribunals such as this. On occasion, all of them could be said to have strayed into arguing their case and losing objectivity, or speculating. In general however, the experts did their best to assist us. The economic experts had to deal with our numerous questions for each of the hot tub sessions (which we notified in advance) as well as cross examination, and the ground they covered was very extensive, as will be made clear below. Their professional and constructive approach to these exchanges during the hearing, even on matters where they disagreed with one other, greatly assisted us in reaching our conclusions on the core economic issues. We should add that we found the JES a particularly useful document.”
“Having established the size of the common costs within BT Consumer as a whole, the next task is to assess what proportion of that common cost can reasonably be recovered from SFV services. Looking at the picture overall, we consider that a reasonable balance is struck where SFV Services are permitted to recover around 40% of the total common costs. Here, we bear in mind that under Dr Jenkins’ SAC Combi approach, and applying an assumption of a 25% margin, the SFV Services’ contribution to common costs would be 62%. It would fall to 56% if a 20% margin was deployed (because of the way in which the margin is itself part of each SAC Combi calculation), and of course we proceed upon the basis of a 13.5% margin, which would suggest (using Dr Jenkins’ approach) a contribution to common costs of a little below 50%.”
“The Extent or Level of Economic Value Required 956. In evidence, Mr Parker adopted what we consider was too high a threshold for the existence of any relevant economic value, by using the expression “unique”
“1101. … The key question is the extent to which it can be said that those who (at any time in the claim) did not switch thereby made a positive or deliberate choice to stay, and in that sense were sufficiently engaged, as opposed to being simply inert and disengaged so that no inference of any attribution of value could be made from them staying. We should add, of course, that merely because customers were engaged, it does not necessarily establish the relevant level of economic value, but it does at least enable an inference to be made that they were capable of making a positive choice to stay because of the value ascribed for example to the BT brand - if this is what they did. 1102. The CR’s position is that little or nothing can be inferred as to a positive choice to stay because the customers were indeed generally disengaged. It is important to note that this is not because the Class Members as a whole are considered to have some particular vulnerabilities or characteristics as a class. Professor Loomes specifically eschewed this approach. Rather it was because of what can be said from a behavioural economics point of view about how consumers act (or not) generally. Dr Hunt, for his part, noted that VOCs were generally in an older demographic … for the purposes of his analysis of their engagement, and of course BT made reference to their age demographic in the March 2019 Survey.”
“1134. Overall, and in the light of the matters referred to above, we consider that it seems likely that a substantial number of those who stayed (while they stayed) probably did so out of a sense of loyalty to a brand to which they had been attached for probably many years. They were not generally inert, as is shown by the fact that most of them (eventually) did switch, and all the indications suggest that those who remained SPCs are continuing to switch to bundles, as there were 1.87m such customers in 2014 and only 0.49m by 2022.”
“The premise for this point is that in many workably competitive markets there will be a range of cost levels among rival firms and if the equilibrium market price needs to cover the costs of the marginal source of supply, this will often mean that at the workably competitive price level, lower cost sources of supply (and lower cost suppliers) will earn returns in excess of that minimum level. One instance where this phenomenon can apply is in markets where there are significant economies of scale due to the existence of some fixed costs. In such markets, the more suppliers there are, the higher will be the price that is required to remunerate the costs of the firms that compete within it. This can give rise to a trade-off between the advantages that more suppliers can create for more rivalry and competition in a market, and a disadvantage associated with more suppliers increasing total industry cost. the detail of this basic proposition (which we did not understand to be in dispute) ….”
“There was, however, some divergence as to how this workable standard should be applied, with the most important difference between the parties being their view as to whether firms could earn profits in excess of the competitive level in conditions of workable competition. Specifically, Ms Kreisberger KC for the CR claimed that workable competition involved the market price being driven down to a level of zero excess profit. In her oral closing she submitted that in a workably competitive market, the price will be driven down to cost-plus, so zero economic profits, but if the firm could point to some unique feature that distinguishes it from the market, then it may be able to put its prices above cost-plus.”
“Of course, this does not justify an ‘anything goes’ approach to the definition of workable competition and we bear that in mind.”
“1156. … In other words even in the case of putative workable competition in the SFV Services market, there can be variations, perhaps significant variations, in the profitability of essentially the same service, sold by different suppliers. It would then be unreasonable and unfair to penalise BT, simply because of its lower cost base.”
“The Relevance of the ability to switch (or not) 957. We have already noted the undoubted fact of extensive switching on the part of SFV customers either to other voice-only providers or (in more cases) to bundles, in paragraphs 163-177 above. We have also concluded that the principal reason for such switching was not as a reaction to the particular prices charged by BT but because of the secular trend away from voice-only services or separate voice and broadband contracts, towards bundles instead – see paragraphs 211-303 above. 958. BT relies upon the ability of SFV customers to switch, and the fact of their switching, as a significant factor in the determination of unfairness or otherwise. This is not because it is some free-standing further economic value point in and of itself… Rather, BT contends that it suggests that since customers could (and did) switch, for those who stayed (while they stayed) they should be assumed to have ascribed positive economic value to their BT landline. … . This contention is then said to be supported by Dr Hunt’s evidence. 959. On the other hand, Ms Kreisberger KC argued that the ability to switch is irrelevant at the Limb 2 because it has nothing to do with the economic value of the SFV Services. 960. For our part, and as a matter of principle, we would accept that in theory, the ability to switch and the fact of switching (or not switching) can be relevant to economic value. For one thing, the fact that a product may have some additional economic value cannot itself be a defence to a claim based on unfair pricing if the customers are in a truly captive market in all respects and have nowhere else to go. This is the essence of the Willingness to Pay fallacy. In such a case the excessive price will not bear a reasonable relation to its economic value. On the other hand, if the customers are not captive, then it would be easier to ascribe a reasonable relation to the underlying economic value. This reflects what Dr Jenkins said at paragraph 6.104 of HJ2, referred to at paragraph 690 of BT’s Closing. 961. Put another way, it may be possible to infer that those who stay with the product have actively chosen to stay (since it was open to them to switch but they have not) because they subjectively attach a positive value to the product or the brand. Of course, all of this depends on the facts and the whole question of the existence or otherwise of customer inertia here (dealt with below); but in principle, we consider that the phenomenon of switching can be legitimately relevant in this way. 962. Beyond stating those principles, it seems to us that the existence of a reasonable relation to economic value (or not) is highly fact-sensitive, as well as being a matter for the exercise of judgment. The resolution of this question also depends, of course, on the extent of the excess of the price over the competitive benchmark because the particular price is the “thing” which must bear a reasonable relation to the economic value.”
“Conclusions on Brand Value 1135. Overall we consider that there is significant evidence that the SFV customers as a whole did engage with their SFV products. We cannot possibly identify the individual motivation of each and every customer, and the evidence and interpretations offered by the experts, unsurprisingly, did not yield a definitive picture. However, for those who remained BT SFV customers (or while they remained), we consider there is sufficient evidence that for at least a substantial number, their decision to do so implies a degree of positive value that they attached to the BT brand.”
“(i) some SFV customers switched to bundles; (ii) such switching was not driven by quality or price but was part of the secular trend (J1104); (iii) a rump of SFV customers never switched (mainly VOCs) (J1105); (iv) it “appears especially odd” that more SPCs did not switch given the price benefits of moving to a bundle (J1131); (v) the “upshot” of their preference “simply … to stay with the supplier they had known for a long time” was to ascribe “a degree of value” to BT (J1132); (vi) despite this evidence being based on “a degree of speculation on the part of both experts”, the CAT’s view was that the speculative evidence “favours BT” (J1132). On the basis of those steps, the CAT concluded that “overall … it seems likely that those who stayed (while they stayed) probably did so out a sense of loyalty to a brand to which they had been attached for probably many years” (J1134).”
“Subject to the caveat just mentioned The caveat is that in paragraph [82], namely that the CAT cautioned against “too prescriptive an approach”. , we would adopt the concept of distinctive value as a useful yardstick by which to measure that value in the product which is different to its cost (as established for these purposes by the relevant competitive benchmark under Limb 1) and which is something in some way different from the offerings of other sellers, but which can include the brand or other value ascribed subjectively by the customer for the product, as distinct from the product’s particular features. In that regard, innovation in its features is not necessary if they are perceived by the customer (subjectively or objectively) to amount to a better quality product in some way. We did not understand BT to disagree with this proposition; see, for example, paragraphs 175-177 of its Opening and paragraphs 683-688 of its Closing. We would add that, in our view, the assessment of distinctive value (or not) is highly fact-sensitive and involves a considerable amount of judgment (as noted in paragraphs 65 and 66 above).”
“… any definable aspect of a Seller’s offering that adds value to the Buyer, in the sense that this aspect represents something that Buyers wish to purchase from that Seller in contradistinction to the offerings of other Sellers; and for which the Buyer will pay a premium”
“We accept that this Give was not technically innovative as such, but this does not prevent it from having some real positive value for customers, which was achieved ahead of the competition, and we consider that it did”
“Overall, we consider that there was real and positive value to Call Protect, even though customers had to take the step of reporting the scam and nuisance calls made to them. In our view, the value extends beyond the active users, i.e. those who had reported a nuisance call which was then blocked, and indeed beyond those who had registered for the service. This is because such customers had the reassurance that there was a free service from which all received protection.”
“Overall, we consider that there was positive value here although, it did require the customer to take action first, and it was not in place for the whole of the claim period”