Competition watchdog upholds TalkTalk’s appeal on wholesale dark fibre price calculation.

The U.K.’s Competition and Markets Authority (CMA) this week dismissed CityFibre’s appeal against BT’s Openreach arm being forced by Ofcom to lower the wholesale price of leased lines.

However, the CMA ruled in favour of TalkTalk, which lodged a separate appeal related to the price of dark fibre access (DFA).

As part of its Business Connectivity Market Review (BCMR) published in April 2016, the telco watchdog proposed forcing BT to offer DFA in a bid to stimulate competition in the business market.

The BCMR also proposed an initial 12% reduction in BT’s Ethernet-based leased line services at speeds up to and including 1 Gbps, and an initial 9% drop in slower services up to and including 8 Mbps. Prices would continue to fall over a three-year period, with new prices linked to the consumer price index (CPI).

CityFibre, which is rolling out fibre-to-the-premises (FTTP) in a number of cities, argued in a filing with the Competition Appeal Tribunal (CAT) in July that Ofcom had calculated its wholesale price cap on leased lines based on BT’s costs, which was wrong. Instead, CityFibre said it should have based its calculation on the costs to any reasonably efficient operator (REO) of providing leased lines.

It argued that BT, with its scale, has lower average costs compared to smaller competitors; therefore, basing a wholesale price cap on BT’s costs represents a margin squeeze for smaller leased line providers, like CityFibre, that have to compete with BT on price.

CityFibre argued that, among other things, it would also discourage altnets from investing in their own networks and instead incentivises continued reliance on BT’s infrastructure.

The CMA dismissed the appeal on the grounds that CityFibre did not prove that Ofcom adopted the wrong methodology to calculate its price cap, nor did it prove that Ofcom’s BCMR had a particular obligation to focus on promoting infrastructure-based competition.

Meanwhile, the CMA upheld a separate appeal by TalkTalk related to the method that Ofcom used to determine the wholesale price that Openreach can charge ISPs for dark fibre access (DFA).

In a nutshell, Ofcom based its calculation on the business rates – also known as non-domestic rates (NDRs) – that BT pays on its Ethernet lines. However, when an altnet gains access to BT’s dark fibre, it becomes responsible for the NDRs, which are higher for smaller ISPs than for BT.

The CMA ruled that Ofcom must take into account higher NDRs when setting the wholesale DFA price.

"We are pleased that the CMA has recognised that BT’s wholesale dark fibre price needs to be adjusted to ensure that it becomes the cost-effective alternative it was originally intended to be," said Richard Thompson, commercial director of TalkTalk Business.

"We are very excited about the opportunities dark fibre will bring to increasingly data-hungry businesses, and we’re looking forward to unveil our plans for giving our customers access to the great value, high performance connectivity they’re crying out for," he said.