Everything Everywhere Ltd v Competition Commission (1st Respondent) Office of Communications (2nd Respondent) Hutchison 3G (UK) Ltd (3rd Respondent) British Telecommunications Plc (4th Respondent)
|England & Wales
|Lord Justice Moses,Lord Justice Patten,Lord Justice Longmore
|06 March 2013
| EWCA Civ 154
|Case No: C3/2012/1523
|Court of Appeal (Civil Division)
|06 March 2013
 EWCA Civ 154
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE COMPETITION APPEAL TRIBUNAL
Marcus Smith QC, Brian Landers and Professor Colin Mayer
 CAT 11
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Longmore
Lord Justice Moses
Lord Justice Patten
Case No: C3/2012/1523
Mr Jon Turner QC and Mr Julian Gregory (instructed by Everything Everywhere) for the Appellant
Mr Michael Bowsher QC and Mr Nicholas Gibson (instructed by the Treasury Solicitor) for the 1st Respondent, Mr Josh Holmes and Mr Mark Vinall (instructed by Ofcom) for the 2nd Respondent, Mr Brian Kennelly and Ms Jessica Boyd (instructed by Baker & McKenzie LLP) for the 3rd Respondent, Mr Robert Palmer (instructed by BT Legal) for the 4th Respondent
Hearing dates: 28th-30th January, 2013
Mobile and fixed communications providers connect their customers with recipients on different mobile networks. The service provided by the intended recipient's mobile communications provider to the originating communications provider which is necessary for that to take place is called 'wholesale mobile voice call termination'. For this service, operators impose a wholesale charge known as 'mobile termination rates' (MTR). These have been subject to regulatory control since 1999 on the basis that absent control the significant market power exercised by operators would be detrimental. Price control is exercised through "significant market power" (SMP) conditions pursuant to what is now the Communications Act 2003 (the 2003 Act).
Ofcom is under a statutory obligation to consider the effects on efficiency and competition of any regulatory control of price and to confer the greatest possible benefits on end-users of public electronic communication services. It had previously, in March 2007, set a price control based on what is known as LRIC plus (long-run incremental cost plus). From May 2009, Ofcom conducted a market review and three consultations. By the time it published its Statement in March 2011, the choice for Ofcom was between pure LRIC and LRIC plus. In that Statement it regulated the charges for mobile call termination of the four national providers on the basis of pure LRIC, a change from the previous basis of LRIC plus. The precise meaning of pure LRIC and LRIC plus is not of relevance to this appeal. Under LRIC plus operators could recover a proportion of fixed costs common to services other than mobile voice call termination. Pure LRIC was regarded by Ofcom as a better approximation of marginal costs and would result in mobile termination rates at less than half of the rates calculated on the basis of LRIC plus. It also had the merit of following a Recommendation of the European Commission on the Regulatory Treatment of Fixed and Mobile Termination Rates in the EU (2009/396/EC) dated 7 May 2009 (issued pursuant to Article 19 of Directive 2002/21/EC).
It was predicted that operators would receive about £200m less in revenue from their wholesale termination charges in the final year of the charge control, following a change from LRIC plus to pure LRIC. Pushing down prices in respect of termination charges would lead to price rises elsewhere (economists adopt the vivid image of the waterbed). Operators would seek to make good their losses by charging their retail subscribers higher prices. Ofcom thought that the retail price rises would principally be focussed on post-pay customers.
The charge controls are imposed for a limited period. In March 2011, the charge control, like previous controls, was set for four years; in future it will be set for three years (s.84A(3) and (7) of the 2003 Act). Ofcom will start work on the next market review in September 2013.
Three of the four national mobile communications providers and British Telecommunications plc (BT) appealed various conclusions in the Statement to the Competition Appeal Tribunal. BT and Hutchison 3G (UK) Limited (Three) supported the change to pure LRIC, but that was challenged by Everything Everywhere Limited (EE) and Vodafone Limited, both of whom sought the maintenance of a control based on LRIC plus.
The statutory appeal regime provided by the 2003 Act required price control matters, such as the control of call termination charges, to be referred to the Competition Commission. The Tribunal referred seven questions to the Commission; only the first is relevant:
"Whether the charge controls imposed…[in the Annex to the Decision]…have been set at levels which are inappropriate because Ofcom erred in adopting the pure LRIC cost standard, rather than the LRIC+ cost standard, as the basis for the charge controls (for the reasons set out in…EE's Notice of Appeal (Ground 1) and of Vodafone's Notice of Appeal."
In short, the referred question which the Competition Commission had to determine on the merits and on the basis of the appellants' grounds of appeal was, whether Ofcom was wrong to impose the pure LRIC and not the LRIC plus cost standard.
The Commission agreed with the contention of Vodafone and of EE that Ofcom was wrong to identify post-pay customers as those most likely to bear the burden of a price rise attributable to the change from LRIC plus to LRIC. On the contrary, it predicted that pre-pay customers would bear the burden of price rises. The Commission then considered the likely effects of that burden. It concluded that those effects would not be of such a nature or extent as to cause them to differ from the conclusion of Ofcom that the cost standard should be changed from LRIC plus to LRIC.
EE and Vodafone pursued the only statutory means available to challenge the Competition Commission's determination; they contended before the Competition Appeal Tribunal that the determination would fall to be set aside on judicial review principles. The Tribunal rejected those contentions and, accordingly, was bound to uphold the Commission's conclusions. EE now appeals against that rejection, facing opposition from the four respondents identified in the title to these proceedings.
Before the Tribunal and before this court, EE claimed to have identified a judicially reviewable error in the Commission's determination. EE submitted that, in the light of the Commission's disagreement with Ofcom, it was necessary to consider the consequences of that disagreement on Ofcom's decision to choose pure LRIC rather than LRIC plus. Ofcom's choice had, after all, been, at least in part, on the basis that price rises would affect post-pay customers. The Commission itself observed that it lacked important survey evidence as to customer responses. Such evidence, so it was submitted, was necessary in order to reach a conclusion as to the choice which would best achieve the statutory objectives of the Communications Act 2003.
In the absence of such evidence, EE contended that the Commission should have acknowledged that it was in no position to make an appropriate choice between LRIC and LRIC plus; the matter should have been referred back to Ofcom to obtain the evidence necessary to reach a conclusion consistent with the statutory aims. The Commission's judicially reviewable error, so EE contended, was in misdirecting itself that it was bound to choose between LRIC plus and pure LRIC despite its own recognition that there was an absence of important evidence on a key issue. That misdirection in law should have been corrected by the Tribunal. The Tribunal's failure to remedy that error by remitting the matter to Ofcom, with directions to make good the absence of that evidence, founds EE's main ground of appeal. Two others are of lesser significance: EE alleges unfairness and inconsistency.
The Statutory Scheme
A full and unchallenged description of the statutory framework and the statutory appeal system is set out in the Tribunal's judgment, paragraphs 35–59. It would only undermine its comprehensive force were I to repeat it. I merely underline certain features to explain this judgment.
The Communications Act 2003 is designed to implement the group of EU Directives known as the Common Regulatory Framework. Article 13 of the Access Directive (2002/19/EC) requires a national regulatory authority such as Ofcom to promote efficiency, sustainable competition and to "maximise consumer benefits" when it imposes price controls. Ofcom is required to promote competition by ensuring that users, including disabled users, "derive maximum benefit in terms of choice, price and quality". It is required to address the needs of specific social groups (Article 8(4) of the Access Directive; Article 8 of the Framework Directive). I have already referred to the power conferred on the European Commission to make Recommendations under Article 19 of the Framework Directive. Member States are required to ensure that their regulatory authorities take "the utmost account" of such a Recommendation and to give a reasoned explanation for not following a Recommendation to the European Commission.
When Ofcom sets binding conditions, such as the price control mechanisms in this case, on those with significant market power in a specific market, the conditions must be objectively justifiable and proportionate (s.47(2) of the 2003 Act). Price control set as a significant market power condition must be appropriate for the purposes of :
a) promoting efficiency;
b) promoting sustainable competition; and
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