Introduction

The case of British Telecommunications Plc v. Office Of Communications ([2017] CAT 25) revolves around British Telecommunications (BT) challenging the findings of the Office of Communications (Ofcom) concerning the regulation of the leased lines market in the United Kingdom. Leased lines, being high-quality fixed connections essential for business data transmission, fall under stringent regulatory scrutiny to ensure competitive practices and prevent market dominance by incumbents.

In the Business Connectivity Market Review 2016 (BCMR 2016), Ofcom concluded that a single product market existed for all Contemporary Interface Symmetric Broadband Origination (CISBO) services ranging from 10 Megabits per second (Mbps) to 100 Gigabits per second (Gbps). Additionally, Ofcom defined three geographic markets: Central London Area (CLA), London Periphery (LP), and Rest of the UK (RoUK), which intriguingly included Central Business Districts (CBDs) without separating them into distinct markets. BT contended that Ofcom's market and geographic definitions were flawed, asserting that these definitions could potentially stifle competition and maintain BT's significant market power.

The core legal issues in this case include the correctness of Ofcom's market definitions, the application of the Hypothetical Small but Significant Non-Transitory Price (SSNIP) test, and the determination of competitive core networks. BT's appeal primarily targets these aspects, arguing that Ofcom erred in its analysis and conclusions, thereby necessitating a reconsideration of the regulatory framework governing leased lines.

Summary of the Judgment

The Competition Appeal Tribunal (CAT) meticulously examined BT's grievances against Ofcom's BCMR 2016 findings. After a thorough analysis, the Tribunal identified significant errors in Ofcom's approach to defining both the product and geographic markets:

• Product Market Definition: Ofcom erroneously established a single market encompassing all CISBO services from 10Mbps to 100Gbps without recognizing the distinct competitive dynamics between lower bandwidth (1Gbps) and Very High Bandwidth (VHB) services (10Gbps and above).
• Geographic Market Definition: Ofcom incorrectly grouped Central Business Districts (CBDs) with the Rest of the UK (RoUK), overlooking the unique competitive conditions within these urban centers.
• Competitive Core Determination: Ofcom misapplied its criteria for expanding the competitive core, leading to an understatement of competitive exchanges and an inaccurate portrayal of market competition.

Consequently, the Tribunal deemed Ofcom's findings on product and geographic market definitions, as well as the competitive core, to be flawed and inappropriate. These findings were subsequently quashed, and the matter was remitted to Ofcom for reconsideration.

Analysis

Precedents Cited

The Tribunal referred to established competition law principles, notably those articulated in the Framework Directive (2002/21/EC) and various guidance documents, including the Commission's Recommendation on relevant markets and the Office of Fair Trading's (OFT) market definition guidelines. Key precedents influencing the judgment include earlier CAT decisions, such as British Telecommunications Plc v Office of Communications [2010] CAT 17 and Hutchison 3G UK Limited v Office of Communications [2008] CAT 11, which underscore the importance of precise market definitions and the appropriate application of the SSNIP test in regulatory assessments.

Legal Reasoning

The Tribunal's legal reasoning centered on several critical aspects of market definition:

• Applicability of the SSNIP Test: The SSNIP test, a cornerstone in market definition, evaluates whether a hypothetical monopolist could profitably impose a small but significant price increase. The Tribunal affirmed that while qualitative evidence could suffice in certain contexts, Ofcom's qualitative SSNIP analysis was fundamentally flawed due to incorrect estimations of market sensitivity and marginal users.
• Metrics for Market Definition: Ofcom's reliance on aggregated metrics, such as the average number of Openreach Competitor Providers (OCPs) within buffer distances, was scrutinized. The Tribunal found that Ofcom incorrectly compared competitive conditions between the CBDs and the London Periphery (LP) instead of the Rest of the UK (RoUK), leading to an inaccurate geographic market definition.
• Competitive Core Determination: Ofcom's method for defining the competitive core was critiqued for inadequately considering the indirect presence of PCOs (Principal Core Operators) and failing to verify their actual competitive impact. The Tribunal highlighted that this oversight could lead to an understatement of competitive exchanges.

Furthermore, the Tribunal emphasized the necessity for regulators to independently determine geographic market boundaries before assessing market power and remedies. Ofcom's procedural missteps in intertwining market definition with SMP (Significant Market Power) assessments were identified as a substantial error.

Impact

This judgment holds significant implications for competition regulation within the telecommunications sector:

• Regulatory Framework: The decision underscores the imperative for precise and methodologically sound approaches in market and geographic market definitions. Regulators must ensure that market definitions accurately reflect competitive realities to prevent the embedding of incumbent dominance.
• Methodology: It highlights the critical role of the SSNIP test in regulatory assessments and the dangers of relying on flawed qualitative analyses. Future market reviews must adopt more robust analytical frameworks to ensure fair competition.
• Remedies and Market Monitoring: Accurate market definitions are essential for imposing appropriate regulatory remedies. Misdefinitions can lead to inadequate regulatory interventions, perpetuating anti-competitive practices.

The remittance to Ofcom signifies a need for a comprehensive reassessment, ensuring that future decisions align with competition law principles and promote a genuinely competitive market landscape.

Complex Concepts Simplified

Leased Lines Market

Leased lines are dedicated telecommunications connections that offer high-speed data transfer between business locations. They are crucial for businesses requiring reliable and substantial data transmission capacities. Due to their importance and the high barriers to entry, leased lines are subject to rigorous regulation to foster competition and prevent monopolistic control by major providers like BT.

Product and Geographic Market Definitions

Product Market: This refers to the range of products or services that are considered substitutes by consumers. Accurately defining the product market ensures that competition assessments are based on the relevant competitive constraints affecting pricing and service provisions.

Geographic Market: This delineates the area within which competitive conditions are homogeneous. Defining geographic markets involves assessing whether businesses within an area operate under similar competitive pressures or if there are significant differences warranting separate market considerations.

SSNIP Test

The SSNIP (Small but Significant and Non-Transitory Increase in Price) test is a diagnostic tool used to define relevant markets. It evaluates whether a hypothetical monopolist could sustain a minor price increase without losing customers to substitutes. If customers shift to alternative products or suppliers, the market definition may need to be expanded to include those substitutes.

Competitive Core

The competitive core represents the central network within a telecommunications infrastructure that remains highly competitive. Defining the competitive core involves identifying key nodes where multiple competitors are present and ensuring that these nodes facilitate effective competition, preventing any single provider from exerting undue market power.

Conclusion

The Tribunal's decision in British Telecommunications Plc v. Office Of Communications serves as a pivotal reminder of the meticulous standards required in regulatory market definitions. By identifying and rectifying Ofcom's errors in both product and geographic market definitions, the judgment reinforces the necessity for regulators to adopt robust, evidence-based methodologies. This ensures that market definitions genuinely reflect competitive dynamics, thereby safeguarding against anti-competitive practices and fostering a fair market environment.

The remittance to Ofcom for reconsideration underscores the Tribunal's role in upholding competition law integrity and its commitment to ensuring that regulatory bodies accurately assess and define market boundaries. As the telecommunications sector continues to evolve with advancing technologies and shifting business needs, such judicial oversight becomes increasingly crucial in maintaining a balanced and competitive marketplace.

Ultimately, this case emphasizes the delicate balance regulators must maintain between fostering competition and allowing for market efficiencies, highlighting the profound impact precise regulatory practices have on market health and consumer welfare.