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Price controls for wholesale ISDN30 services

Issued 26 August 2011

Executive summary 

ISDN30 is widely perceived as a legacy service that is now in decline, with customers increasingly switching over to IP-based alternatives. The introduction of a charge control for the first time on a service that is in decline runs counter to normal regulatory practice, where obligations tend to be relaxed as services move toward obsolescence. Openreach has consistently expressed concerns that the introduction of a charge control on this legacy service would risk significant adverse consequences by stoking up demand – thereby causing inefficient investment - and impeding migration to newer, alternative technologies.
Openreach considers that Ofcom‘s proposals have gone some way to addressing its concerns, in particular by accepting the inappropriateness of a snapshot assessment of the profitability of wholesale ISDN30 services and acknowledging that there is uncertainty surrounding the development of demand both for these services and for alternatives, such as IP-based services. Openreach acknowledges that Ofcom has sought to balance the diverse views of relevant stakeholders, and in this context has proposed measures that seek to:
a) take account of the depreciated state of ISDN30 assets and of the material risk of unintended consequences by setting a control based on an adjustment of BT‘s costs to represent those of a hypothetical ongoing network, while at the same time accounting for increased levels of demand that may be stimulated by the price control, in Ofcom‘s modelling
b) avoid potential shocks to demand that might result from too great a step-change in regulation. In particular:
  • given the existing requirement for ISDN30 charges to be fair, reasonable and not unduly discriminatory, the end-of life status of ISDN30, the lack of any previous price control as well as the low number of services in the proposed charge control baskets and the proposed safeguard caps, it would be disproportionate and inappropriate to impose an additional cost orientation obligation  
  • insofar as a smooth glide path without step changes is crucial in the context of significant demand uncertainties (such as in the case of ISDN30), the imposition of a start-price adjustment could result in immediate shocks to demand and would thus be inappropriate and disproportionate.

Notwithstanding this, Openreach continues to have concerns regarding other aspects of Ofcom‘s proposals, which Openreach considers disproportionate and at risk of giving rise to adverse consequences.

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