Competition Law and Ofcom's 2016/17 Work Plan

Following its Digital Communications Strategic Review, the UK telecoms regulator Ofcom has issued its Work Plan for 2016/17 which notes that (whilst there is only one ongoing antitrust investigation in the UK telecoms sector) general competition law principles have wider relevance to Ofcom's regulatory work.

Francesco Liberatore, an antitrust and regulatory lawyer at Jones Day in London, outlines below 5 key work areas from Ofcom's annual plan and the potential competition law issues arising in each area.

In summary, competition law may serve as a tool for those seeking to challenge (or defend) Ofcom proposals in each of these areas. It is therefore in the interests of all companies involved in any of these work areas to understand the potential competition law implications.

The 5 work areas are as follows:

1. SMP market reviews – under the SMP regime, Ofcom must conduct a review of certain markets and decide whether to impose regulatory conditions (e.g. price controls) on operators with significant market power (SMP) on such markets. In doing so, Ofcom must consult all operators concerned as well as the European Commission. The services currently scheduled for review are: narrowband; mobile call termination; wholesale broadband access; and wholesale local access services. The operators concerned and interested third parties may appeal against any of Ofcom's final determinations to the Competition Appeal Tribunal (CAT), whose rulings may in turn be appealed to the Court of Appeal on points of law. The CAT must refer any price control matter to the Competition and Markets Authority (CMA) for preliminary adjudication, before reaching a judgment. Under certain circumstances, operators concerned and interested third parties also may arguably appeal directly to the General Court of the EU against the European Commission's measures requiring the withdrawal or amendment of Ofcom's determinations, provided that they can successfully demonstrate that such European Commission's measures (a) are of direct and individual concern to them and (b) do not leave any discretion to Ofcom, their implementation by Ofcom being purely automatic. EU competition law principles provide the bedrock of this SMP regime. Any Ofcom measure – and, if challenged, the CMA preliminary adjudication on price control matters as well as any court ruling on such measure – will therefore need to comply with EU competition law principles.

2. Improving access to Openreach's underground cable ducts and telegraph poles – in an attempt to promote fiber to the premises (FTTP) deployment, Ofcom plans to propose to require BT to provide alternative carriers with access to its underground cable ducts and telegraph poles, so that these carriers can install their own equipment instead of relying on BT's equipment. In other utilities cases in which such a "passive access" remedy has been implemented, one of the issues that arose was how to balance the aspiration of alternative carriers to build and maintain their own connections on the incumbents' network, on the one hand, and the incumbent's desire to use its own qualified staff to guarantee the integrity of its network and avoid competitors accessing its confidential information, on the other. In those cases, competition law was used to help strike a balance between these two competing objectives.

3. Reforming Openreach governance and strengthening its independence from BT, through additional operational separation measures – to complement the encouragement of FTTP deployment, Ofcom intends to introduce additional operational separation measures aimed at guaranteeing that BT provides its competitors with equal access to Openreach services. Such proposals will then be subject to discussion with the European Commission under Article 13(a) of the EU Access Directive. There is little in the way of precedent on the application of Article 13(a) to date. However, operational separation has often been used in UK merger control procedures as an interim measure to impede pre-emptive action pending the outcome of a merger control inquiry or, less often, as a remedy in return for merger control clearance (structural separation is more common as a remedy in return for merger control clearance). In addition, early models of telecoms operational separation have been adopted in other EU Member States (such as Italy) on the basis of national legislation mirroring EU competition law. Competition law principles and precedents may therefore provide a useful indication of the types of issues that ought to be taken into account by Ofcom in its proposals for additional operational separation of Openreach from BT, including the following:

• changes to the corporate governance, decision making procedures and reporting lines at board level;
• separation of financial incentives;
• identification of "touch points" and creation of fire walls;
• monitoring and compliance (e.g. compliance statements versus monitoring trustee); and
• the need to respect the principle of proportionality and the parent's right and duty to protect its legitimate business interests, including being able to avoid financial and regulatory liability arising from the conduct of the ring fenced subsidiary.

4. Improving consumers' ability to switch mobile and triple-play services and monitoring price increases – Ofcom notes that in the past year there have been significant increases in standard tariff prices, combined with a perceived lack of consumers' switching, particularly for mobile and triple-play services. Ofcom intends to understand why this is the case and take action if necessary. Absent specific instances where action under its competition law powers may be needed, Ofcom could consider referring these issues to the CMA for a market investigation if it felt that there may be certain market features that have an adverse effect on pricing competition for retail telecoms services and consumers' ability to switch. The CMA has recently considered similar issues (lack of consumers' switching and price rises) in its investigations of the markets for personal current accounts, small and medium-sized enterprise banking and energy services.

5. Spectrum allocation, reconfiguration and sharing – Ofcom will be busy dealing with spectrum issues for the foreseeable future: it intends to proceed with an auction of the 2.3 and 3.4 GHz spectrum; is consulting on proposals to allocate 700 MHz frequencies; is considering the potential for sharing spectrum for PMSE applications such as wireless microphones and in-ear monitors; and is looking at longer-term options for reconfiguring spectrum in the 1800 MHz band. Not only does EU competition law help shape the parameters of how and on what basis spectrum should be allocated in each of these bands – by prohibiting State measures that would give an unfair economic advantage to some operators or would fail to meet existing demand for the use of certain spectrum –, but it may also serve as a tool for those seeking to challenge (or defend) Ofcom spectrum allocation decisions to exclude certain uses from portions of spectrum. For example, one of the most contested issues in the allocation of 700 MHz in the US was the Federal Communications Commission's requirement that companies must allow open access to devices and software on that frequency when it became available. Spectrum sharing is generally encouraged by EU telecoms regulatory policy. However, to address potential competition law concerns, certain safeguards should be put in place as regards the sharing of spectrum between competitors, in particular with respect to spectrum pricing when offering spectrum access opportunities to secondary users.

Conclusion

It is clear that EU competition law principles will be relevant to Ofcom's future regulation of the UK telecoms sector in a number of its key work areas and it is in the interests of all companies involved in any of these work areas to understand the potential competition law implications.