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CMA throws out majority of complaints from two U.K. telcos regarding margin squeeze test in wholesale broadband market.
The U.K.’s competition body on Monday rejected appeals lodged by BT and TalkTalk against Ofcom’s rules on the pricing of wholesale broadband services.
The situation dates back to March 2015, when the U.K. telecoms regulator confirmed that 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. The move was intended to ensure that rival retail service providers can match BT’s prices while still offering services profitably.
At the time, BT 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 the telco to pass the margin squeeze test. BT argued that the regulator should take into account the fact that it was a newcomer to the pay TV market.
BT appealed to the Competition Appeal Tribunal (CAT), which in January this year referred the case to the Competition and Markets Authority (CMA).
On Monday the CMA said it dismissed all but one of BT’s challenges. It ruled that BT’s compliance with the regulation should be assessed by Ofcom on a six-monthly, rather than month-by-month, basis.
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.
TalkTalk, meanwhile, appealed on the grounds that the structure of Ofcom’s proposed test would not prevent BT from applying a margin squeeze to individual market segments or operators, thereby distorting competition. It also claimed that the regulator should have made adjustments for the fact that BT generates higher call revenues that cannot be replicated by a competitor.
The CMA rejected all of TalkTalk’s claims.
