Claimant seeking to rent BT’s communication lines in relevant market – Claimant submitting significant change occurring during review period to prevent imposition of charge controls

TalkTalk Telecom Group plc v Office of Communications (British Sky Broadcasting Ltd, intervener): Court of Appeal, Civil Division: 30 October 2013

The claimant was a leading provider of retail fixed-line rental, voice calling and broadband telecommunications in the UK. The defendant was the national regulatory authority, responsible for the regulation of the communications industry in the UK. The principal provider of wholesale broadband services in the wholesale broadband access market was British Telecom (BT).

By virtue of BT’s significant market power (SMP) in large sections of the UK, the defendant considered it necessary to impose price controls on it in those areas where it was strongest, pursuant to the Communications Act 2003 (the 2003 act). Under the 2003 act, the defendant was required, inter alia, to identify markets in which it was appropriate to consider whether to make a market power determination, analyse those markets for the purpose of deciding whether to make such a determination, and, where relevant, impose regulatory obligations, including price controls.

In December 2010, the defendant made its ‘market review determination’. It identified four separate geographical markets, including, of particular relevance, telephone exchange areas where only BT was present or forecast to be present (market 1). The defendant decided to impose a charge control on BT by way of an SMP condition in relation to market 1. In its market review determination, the defendant stated, inter alia, that it had looked at potential market developments over the following four years, and that, although the claimant had announced an intention to use ‘local loop unbundling’ (LLU) in a number of exchanges, by which it would install equipment at an exchange and rent the copper lines connecting that exchange to its customers, the defendant determined that BT’s market share in regard to market 1 would unlikely drop below 70% in those exchanges, and BT was expected to maintain a very high market share and face only a single competitor entering at some point during the market review period. Thereafter, the defendant proceeded to consult about the charge control to be imposed on BT in relation to market 1.

Following that period of review, in July 2011, the defendant issued a ‘charge control determination’. By that stage, the claimant had identified specific exchanges in which it had intended to deploy LLU, and it had completed the process as regarded some exchanges. Accordingly, the defendant had to consider whether there had been any material change in the period between December 2010 and July 2011 for the purposes of section 86 of the 2003 act. The defendant considered that, since the market review determination, there had been no material change and, accordingly, proceeded to impose charge controls on BT for market 1 by way of the Charge Control Determination. The claimant challenged the defendant’s charge control determination to the Competition Appeal Tribunal (the tribunal) on the ground that the defendant ought to have determined that there had been a material change for the purposes of section 86 of the act. The tribunal rejected that challenge. The claimant appealed

The issue that fell for determination was whether the defendant had reached the right decision by the charge control determination that there had been no material change, for the purposes of section 86 of the 2003 act, since the market review determination. The appeal would be dismissed (Sir Bernard Rix dissenting).

The test for material change for the purposes of section 86 of the 2003 act was to compare the position as it was at the time of the change control determination with the terms of the market review determination in order to decide whether there had been a material change, the latest position being examined by reference not (or not only) to what the factual position had been at the earlier date, but what the defendant had forecast in its earlier analysis and determination (see [132], [140] of the judgment).

In the instant case, the actions taken by the claimant during the period between the market review determination and the charge control determination, namely its deployment by way of LLU and placing orders in exchanges within market 1, had been reasonably within the scope of what the defendant had foreseen in the market review determination. In those circumstances, there had been no justification for requiring the defendant to have gone through the market review process again by reference to the up-to-date circumstances, the defendant’s forecast as to the future having proved to have been reasonably accurate.

The changes that had taken place by way of deployment by the claimant in market 1 exchanges had been within the scope of what the defendant had forecast and taken into account in carrying out the market analysis set out in the market review determination. The deployment carried out by the claimant had not been far from what the defendant had envisaged and allowed for, and had not been outside the scope of the defendant’s forecast, on the basis of which it had conducted its analysis of the relevant markets.

Accordingly, on a proper comparison of the circumstances known to the defendant in June 2011 on the one hand, and with the terms of the market review determination in December 2010 on the other, there had been no material change in the market by reference to which the market review determination had been made. Accordingly, section 86 of the 2003 act had been satisfied and it had been open to the defendant to proceed without more to impose the SMP condition consisting of the charge control upon BT in relation to market 1 (see [130], [142], [143], [153] of the judgment).

Meredith Pickford (instructed by Towerhouse Consulting LLP) for the claimant; John Holmes and Hanif Mussa (instructed by the General Counsel to the Office of Communications) for the defendant; Philip Woolfe (instructed by Herbert Smith Freehills LLP) for the intervener.