British Telecommunications Plc v Office of Communications Cable and Wireless UK and Others (Interveners)
| Jurisdiction | England & Wales |
| Judge | Lord Justice Etherton |
| Judgment Date | 27 July 2012 |
| Neutral Citation | [2012] EWCA Civ 1051 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: C3/2011/1683 |
| Date | 27 July 2012 |
[2012] EWCA Civ 1051
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE COMPETITION APPEAL TRIBUNAL
1146/3/3/09
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Rix
Lord Justice Etherton
and
Lord Justice Lewison
Case No: C3/2011/1683
and
Mr Christopher Vajda QC, Professor Andrew BurrowsQC, Ms Sarah LeeandMr Ben Lynch (instructed by Bird & Bird LLP) for the Appellants
Mr Pushpinder Saini QC, Mr James SeganandMr Hanif Mussa (instructed by Ofcom) for the Respondents
Ms Dinah Rose QC and Mr Tristan Jones (instructed by Olswang LLP) for the Interveners
Hearing dates: 19th, 20th, 21st June 2012
British Telecommunications plc ("BT") seeks permission to appeal two judgments of the Competition Appeal Tribunal ("the Tribunal") dated respectively 11 June 2010 ("the Preliminary Issues Judgment") and 22 March 2011 ("the Main Judgment"). By those judgments the Tribunal dismissed an appeal by BT under section 192 of the Communications Act 2003 ("the Act") against a determination dated 14 October 2009 ("the Determination") of the Respondent, the Office of Communications ("Ofcom"), resolving disputes between BT and certain communication providers concerning the charges levied by BT for partial private circuits ("PPCs"). The Determination and those judgments of the Tribunal affect, among others, Cable and Wireless UK, Virgin Media Limited, Global Crossing (UK) Telecommunications Limited, Verizon UK Limited and Colt Technology Services, who were interveners before the Tribunal and are interveners in this Court ("the Interveners").
On 20 October 2011 Rimer LJ ordered that the two applications for permission to appeal be adjourned to a full court, with the appeals to follow immediately on such grounds (if any) as the court may permit to be argued. In view of the full written skeleton arguments, we decided for reasons of efficient case management to permit the parties to the appeal, that is BT, Ofcom and the Interveners, to present their full arguments, without taking the applications for permission as a separate preliminary matter.
All references in this judgment to paragraphs in the Tribunal's judgment are references to paragraphs in the Main Judgment.
The background
PPCs
PPCs are described in detail in paragraphs 18 to 27 of the Main Judgment. The following is a brief summary. A PPC is a set of network components that a communications provider (a "CP") is able to buy from BT in order to provide a private circuit to a third party (the third party typically being a customer of the CP in question). The PPC runs from the point of connection between the CP's own network and BT's network, across the BT network to the third party, to supply a transmission path at the appropriate bandwidth. "PPC" is, therefore, a name that describes the network elements that are used to provide connectivity between that point of connection and the third party. A PPC enables a CP to extend its network. CPs purchase PPCs to provide connectivity between their existing core network and their end-user customers in locations where they have no direct access network.
A PPC is made up of either trunk and terminating segments or terminating segments alone. Put simply, terminating segments are all PPC services excluding trunk. What is ordered from BT by a purchasing CP is a circuit from one site to another. There is no dispute that, when trunk segments are sold, they are always sold with terminating segments as part and parcel of the circuit. Trunk segments are never sold individually.
BT offers PPCs with a range of bandwidths; for example, 64 Kbit/s, 1 Mbit/s, 2 Mbit/s, 34 Mbit/s, 45 Mbit/s, 140 Mbit/s and 155 Mbit/s. The Determination related to 2 Mbit/s trunk segments of PPCs.
The relevant regulatory framework
Anti-competitive conduct is prohibited by Articles 101 and 102 of the Treaty on the Functioning of the European Union ("TFEU"). Article 102 TFEU prohibits the abuse by an undertaking of a "dominant position" on a given market.
EU authorities have long recognised that in certain sectors of the economy reliance upon the application and enforcement of competition rules after the event ( ex post regulation) may be insufficient to stimulate effective competition. That is particularly true of sectors, such as telecommunications and postal services, which were historically dominated by state-owned monopolies. In such sectors the historical incumbent, or other dominant undertaking, may possess such advantages that it is necessary to impose specific rules controlling its behaviour on a particular market in advance ( ex ante regulation).
The EU has therefore put in place regulatory frameworks for such sectors which allow the Member States' national regulatory authority ("the NRA") to impose in certain circumstances specific ex ante obligations on undertakings which are in a dominant position (that is, which have significant market power ("SMP")) in particular markets, with the aim of stimulating competition more effectively than would be achieved by the mere ex post application of competition rules.
The present EU regulatory framework for telecommunications is the result principally of five Directives, known as the Common Regulatory Framework ("the CRF"), of which the two most relevant to the present appeal are Directive 2002/21/EC, known as the Framework Directive ("the FD"), and Directive 2002/19/EC, known as the Access Directive ("the AD").
Under the CRF the NRA is obliged to conduct periodic market reviews in the telecommunications sector in order to identify undertakings with SMP in particular markets, and to impose appropriate ex ante obligations upon such undertakings. A helpful and detailed review of the European and domestic legislative framework for the imposition of SMP conditions in the telecommunications industry was given by Lloyd LJ in Hutchison 3G UK Ltd v The Office of Communications [2009] EWCA Civ 683. It is unnecessary, therefore, for me to say more about it here.
The Act is intended to give effect to the CRF.
The provisions of the CRF and the Act most relevant to this appeal are set out in Appendix 1 and Appendix 2 to this judgment.
The regulatory history of the present dispute
In 2003 and 2004 Ofcom, which is the UK's NRA and which replaced Oftel, conducted, as part of its market review function under the CRF, a review of leased lines, including PPCs. Ofcom's decision statement was released on 24 June 2004 ("the LLMR Statement").
In the LLMR Statement Ofcom identified distinct markets in respect of: (1) high bandwidth PPC terminating segments, (2) low bandwidth PPC terminating segments, and (3) trunk segments at all bandwidths. Ofcom concluded that BT had SMP in each of those three distinct markets.
This appeal is concerned with the PPC trunk segments market. In relation to that market Ofcom was satisfied that (1) excessively high pricing of wholesale inputs distorts allocation of resources and leads to inefficiency for retail competitors who may be forced into using less efficient alternative technologies, and the imposition of a "cost orientation condition" would promote competition and thereby promote the interests of end-users (para. 8.62); (2) there was a risk of BT fixing and maintaining some or all of its prices at an excessively high level, so as to have adverse consequences for end-users (para. 8.64); (3) trunk segments were priced significantly above cost (para. B.99); and (4) BT's trunk prices in general were significantly above the competitive level (para. 3.74, 3.88–3.89).
Ofcom satisfied itself, in respect of each of the three distinct markets which it had identified (paras. 8.40–8.64), that there was a risk that BT might fix and maintain some or all of its prices at an excessively high level, or impose a price squeeze, with adverse consequences for end-users of public electronic communications services (sections 88(1)(a) and 88(3) of the Act); and that the setting of SMP conditions was appropriate for the purposes of promoting efficiency and sustainable competition and conferring the greatest possible benefits on the end-users of public electronic communications services (section 88(1)(b) of the Act).
All of the relevant statutory tests having been satisfied, Ofcom decided to impose on BT: (1) an interim charge control plus a cost orientation obligation in respect of certain PPC terminating segments (Conditions G3, G4, GG3 and GG4); and eight SMP conditions in respect of trunk segments (Conditions H1-H8), including a cost orientation obligation.
The charge control imposed by Condition G4.3 in respect of terminating segments provided that BT "shall charge no more than the amounts set out in Annex A to this Schedule for each of the products set out in that Annex."
This appeal concerns the cost orientation obligation in respect of trunk segments in Condition H3.1. It is as follows:
"Condition H3 – Basis of Charges
3.1 Unless Ofcom directs otherwise from time to time, the Dominant Provider shall secure, and shall be able to demonstrate to the satisfaction of Ofcom, that each and every charge offered, payable or proposed for Network Access covered by Condition H1 is reasonably derived from the costs of provision based on a forward looking long run incremental cost approach and allowing an appropriate mark up for the recovery of common costs including an appropriate return on capital employed."
Ofcom also imposed accounting obligations upon BT which were intended to enable BT to demonstrate that the obligations of cost...
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