CMA rejects BT & TalkTalk appeals on wholesale superfast broadband

22 June 2016 |

Appeals by BT and TalkTalk against a UK regulatory ruling by Ofcom relating to wholesale broadband prices have been rejected

Appeals by BT and TalkTalk against a UK regulatory ruling by Ofcom relating to wholesale broadband prices have been rejected by the Competition and Markets Authority (CMA).

In March 2015 Ofcom confirmed it would impose a new margin rule on BT, requiring the incumbent to maintain sufficient distance between its wholesale prices for superfast broadband access – or virtual unbundled local access (VULA) products – and its own retail prices.

This was intended to ensure that rival retail service providers can match BT's prices and still be profitable.

BT launched a challenge in May 2015 against a ruling introducing price controls limiting the amount it can charge rivals to access its fast broadband network, with the decision applying to its fibre-to-the-cabinet (FTTC) infrastructure.

BT accepted there should be some price controls but claimed Ofcom’s decision was ‘manifestly inadequate,' saying Ofcom was ‘undermining its own attempts to promote competition’ by introducing barriers to expansion pay-TV markets.

BT also claimed that Ofcom's margin squeeze test was flawed since its cost calculation included free BT Sport content; essentially, a higher cost base for BT would make it more difficult for it to pass the margin squeeze test. BT said Ofcom should take into account the fact that it was a newcomer to the pay TV market and appealed to the Competition Appeal Tribunal (CAT), which in January this year referred the case to the Competition and Markets Authority (CMA).

TalkTalk claimed that Ofcom's calculations should not have included landline call costs, because BT customers are more likely to use a landline than TalkTalk customers, meaning the comparison was unfair.

The Competition Appeals Tribunal (CAT) referred both challenges to the CMA, which has ruled that Ofcom’s ‘margin squeeze’ is fair.

BT said it was pleased with the decision, as one minor change was made; while under the initial ruling price caps were to be revised every month, revisions will now take place only every six months instead.

On Monday, the CMA said it dismissed all but one of BT's challenges. However, it sided with the regulator on all other points, most of which centred on the design and legality of the test, including the issue of the cost of BT Sport. The CMA rejected all of TalkTalk's claims.

BT, Talk Talk, superfast broadband, wholesale broadband prices, Ofcom, Competition and Markets Authority