Protecting consumers by promoting competition

BT's response to Oftel's consultative document of 31.01.02 - "Protecting consumers by promoting competition - Consultation on Oftel's review of the fixed telephony market"

Download full response in PDF format.

Download Annex A response in PDF format.

Download Annex B response in PDF format.

Download Annex C response in PDF format.

Download Annex D response in PDF format.

Download Annex E response in PDF format.

Executive Summary

It is 20 years since competition was introduced into the UK telecommunications market and almost 18 years since the first RPI-X price cap. In this response, BT will demonstrate that competition is now sufficiently well established to allow price caps to be removed.

BT welcomes the deregulatory language that Oftel uses in its consultative document, but questions whether the proposals are entirely consistent with this language. More new controls are proposed than currently exist. Oftel offers the prospect of the removal of retail caps, but not quite yet, while the 'safeguard caps' it describes could prove to be every bit as tough as today's 'binding caps'. This is due, amongst other things, to the growing percentage of revenues in the basket that are from the access network where cost savings are harder to achieve, making the target more and more difficult to achieve each year. Tough caps do not only impact on BT - they discourage investment by competitors as well.

BT contends that Oftel has underestimated the level of competition already in the market, and the power of existing structural changes and further actions already in the pipeline. BT is particularly concerned that Oftel has not taken account of the constraining impact of mobile telephony, despite overwhelming empirical evidence. Crucially, BT does not believe that the proposals are consistent with the developing trend of European regulation. The new EU Directives will set specific tests for the imposition of new regulation and could make some elements of existing regulation obsolete.

In consequence, Oftel's proposals do not move far or fast enough in removing the remaining retail price controls. Regulatory barriers to price restructuring, which would remain in place under Oftel's proposals, act as a powerful disincentive to more effective access competition. To use the market distortions created by the current price control regime to justify further regulation is not logical. Furthermore, it would not be reasonable to ask BT to wait until every factor has had its full impact before giving the market freedom to operate.

Within this response, BT provides further empirical evidence of competition continuing to grow and of its impact on the behaviour of consumers. For example, new evidence is presented which demonstrates that the price pressures created by competition are effective in inducing switching between suppliers by consumers.

In terms of the remedies that Oftel proposes, BT shows in its response that:

• The proposed new regulation of wholesale line rental is unnecessary, given the availability of the Calls & Access product for Service Providers in the market today. Genuine issues such as ensuring scalability for a new breed of competitors can be better dealt with by co-operation through the Calls & Access Interest Group - and without the need for regulation.

• A price cap of RPI-RPI for the lowest spending eight deciles of BT's residential customers, effectively forcing BT to cut prices in real terms every year, is unreasonable given that today BT fails to make a reasonable rate of return on these customers.

• It is not clear whether the proposal for any control to be removed automatically by a 'trigger' mechanism based on price changes can have any place in the proposals given the imminence of Oftel's market reviews under the new EU Directives. Furthermore, the level of the trigger which Oftel suggests is quite unrealistic for either BT or its competitors to achieve.

• Oftel has a clear interest in ensuring that the industry meets affordability objectives for the vulnerable. The use of unduly broad-based regulatory instruments to achieve social objectives is fraught with risk. Care needs to be exercised to ensure that any such action is precisely targeted, efficient, economically sustainable and does not distort competition. Of the three proposed options, only extension to the Light User Scheme broadly addresses these concerns, even though it still involves a measure of selective 'taxation.'

• The establishment of an industry funded Universal Service Obligation is long overdue. Oftel says that, if its proposals bring about effective competition in the calls market, it would review the means of financing the retail elements of the Universal Service Obligation when it next reviews the obligation as a whole in 2003. BT believes this point has already been reached.

• Voluntary assurances that link a set of call prices for small businesses, where there is intense competition, to residential tariffs are no longer appropriate, not least given that 99% of business customers are already on alternative schemes to the regulatory package.

• Continued controls on hardwired telephones are outdated. Nevertheless, BT recognises that there are elderly or vulnerable customers amongst the dwindling population of customers using hardwired telephones. BT would therefore have no objection to maintaining this Licence condition for a well-defined time period.

• In principle, movement from a regime of Licence conditions towards a regime of voluntary assurances would be welcome if the latter were used for a limited period on the path to full deregulation. But voluntary assurances should not be used to prolong regulation where it would not otherwise be justified under EU Directives or UK competition law.

BT would welcome further discussion on the contents of this paper with interested parties. In the first instance comments, questions, requests for further details or points of clarification should be addressed to:

Francine Ravetllat

Tel :-020 7728 4111
Fax:-020 7236 3439
E-Mail: - price.control.review@bt.com