Promoting competition and investment in fibre networks: Wholesale Fixed Telecoms Market Review 2021-26 Volume 3: Non-pricing remedies Non-confidential version – redacted for publication [] STATEMENT: Publication date: 18 March 2021 2021 WFTMR Volume 3: Non-pricing remedies Contents Section 1. Approach to remedies 1 2. Copper Retirement 12 3. General remedies: physical infrastructure, WLA, LL Access and IEC markets 45 4. Specific remedies: physical infrastructure market 81 5. Specific remedies: WLA, LL Access and IEC markets 104 6. Specific remedies: dark fibre 128 7. Regulation of geographic discounts and other commercial terms 168 8. Legal tests 204 2021 WFTMR Volume 3: Non-pricing remedies 1. Approach to remedies 1.1 This section sets out our approach to remedies. These are the remedies that we have decided to impose on Openreach1 in order to address BT’s SMP in each relevant wholesale fixed telecoms market in the UK (excluding the Hull Area). As set out in our market analysis (Volume 2), the markets where we have found BT to have SMP are: • the physical infrastructure market in the UK; • the Wholesale Local Access (WLA) markets in each of Area 2 and Area 3; • the Leased Lines Access (LL Access) markets in each of Area 2, Area 3 and the High Network Reach (HNR) Area; and • the Inter-Exchange Connectivity (IEC) markets at BT Only and BT+1 exchanges. 1.2 Our approach to remedies takes into account stakeholders’ comments in response to our consultations. The detail of our non-pricing remedies is set out in Sections 2 to 7 of this volume; our pricing remedies, including charge controls, in Volume 4; our specific quality of service remedies in Volume 5 and our regulatory reporting remedies in Volume 6. Covid-19 pandemic 1.3 As many of our stakeholders have noted, the Covid-19 pandemic has put significant pressure on the UK economy, including the telecoms industry, through various negative effects, such as disrupted supply chains and limited access to premises. At the same time, the pandemic has changed our daily life, including our increased dependence on reliable broadband for work and education. 1.4 This clearly illustrates the importance of investment in gigabit-capable networks, which typically offer both broadband and leased lines services. We believe that our approach to remedies remains appropriate, in particular our objective to promote competition and investment in gigabit-capable networks by Openreach and other network operators, while seeking to protect consumers and existing models of downstream competition. 1.5 Notwithstanding the pandemic, telecoms providers are continuing to deploy new networks. The pandemic may lead to some temporary impacts on Openreach’s ability to meet quality of service standards which we have reflected in our quality of service regulation for the first year of the review period, set out in Volume 5 Section 3. Competition concerns 1.6 BT’s SMP in the physical infrastructure, WLA, LL Access and IEC markets, gives rise to a number of competition concerns, as set out in our market analysis (Volume 2 Sections 5 1 As explained in Volume 2, we find BT to have SMP in the physical infrastructure, WLA, LL Access and IEC markets. To address this SMP we impose remedies on BT. We refer to Openreach in this volume reflecting that BT’s Openreach division, run by Openreach Limited, is responsible for providing regulated services over the copper and fibre connections between BT’s exchanges to homes and businesses. 1 2021 WFTMR Volume 3: Non-pricing remedies and 8). In summary, we consider that, absent regulation, Openreach has the ability and incentive to engage in various forms of exclusionary and/or exploitative conduct that could distort competition and/or harm consumers, including: • Openreach may not invest in new networks or may do so more slowly than would occur in a competitive market. This concern is addressed by our overall package of remedies seeking to incentivise network competition and investment in gigabit-capable networks. • Openreach could refuse to supply access and thus restrict competition in the provision of products and services in the relevant downstream markets. This concern is addressed in particular by our general network access remedy (Section 3) and our specific network access remedies (Sections 4 to 6). • Openreach could set excessive wholesale charges or, in combination with downstream prices, engage in a price squeeze (also referred to as margin squeeze). These concerns are addressed in particular by our specific pricing remedies (Volume 4), and by our general network access remedy which requires that charges (in the absence of a charge control or basis of charges obligation) are fair and reasonable (Section 3). • Openreach could favour BT’s downstream businesses to the detriment of its competitors in the relevant wholesale and retail markets, by both price and non-price discrimination. This concern is addressed in particular by our general non-discrimination remedies (Section 3). • Openreach could target price reductions or adopt other commercial terms in order to deter the rollout of new networks by competitors. This concern is addressed in particular by our regulation of geographic discounts and other commercial terms (Section 7). • Openreach may not have sufficient incentive to maintain an adequate level of service quality in the provision and repair of wholesale services, or may discriminate in the quality of provision. This concern is addressed in particular by our quality of service remedies (Volume 5). Approach to remedies 1.7 As set out in Volume 1, our strategy, taking into account our legal duties, is to promote investment in gigabit-capable networks by Openreach and other telecoms providers in order to promote network-based competition. We want to encourage BT’s competitors to build their own networks, rather than relying on network access from Openreach. In areas of the UK where there is unlikely to be material and sustainable competition to BT in the commercial deployment of competing networks, we want to promote investment by Openreach. 1.8 Our general regulatory approach is to apply remedies as far upstream as possible to ensure that as much of the value chain as possible is open to competition. In view of our legal duties and broader strategy (Volume 1), and our market analysis and competition concerns (Volume 2), our overarching remedy is to maintain access to BT’s ducts and poles in all areas of the UK (excluding the Hull Area). We consider that this remedy is most 2 2021 WFTMR Volume 3: Non-pricing remedies appropriate in incentivising competitive investment in gigabit-capable networks, as it reduces the cost and increases the speed of network rollout by competitors. 1.9 The remedies we impose in downstream markets also promote competition and investment in gigabit-capable networks. In all areas, we prevent Openreach from using wholesale pricing structures to deter new network build by competing network operators by prohibiting certain geographic discounts and providing transparency of other commercial terms that may distort competition. We also provide a path for shifting the focus of regulation from Openreach’s copper to full-fibre network, supporting a progressive transition. We discuss these remedies in more detail below. 1.10 We recognise that network competition will not develop uniformly across the UK. Therefore, we have decided to adopt a regulatory approach to remedies that reflects how network competition develops in the different product and geographic markets we have identified. Specifically, for markets downstream of physical infrastructure, we differentiate between places where material and sustainable network competition is viable, and places where such competition is unlikely to emerge, as discussed in more detail below. Approach in areas where there is potential for material and sustainable network competition (Area 2) 1.11 In these areas our objective is to promote competition and investment in gigabit-capable networks by Openreach and other telecoms providers. The resulting network competition will provide increasing protection for consumers in the long term, and in many areas effective competition may emerge such that the need for regulation falls away. This will take time and therefore we seek to protect consumers and existing models of downstream competition in the short term. 1.12 Accordingly, our approach is to maintain access to Openreach’s existing wholesale broadband and leased lines services. In setting prices and other regulatory conditions, we have exercised our discretion in favour of an approach that promotes competition and investment in gigabit-capable networks, and protects consumers and existing models of downstream competition in the short term. 1.13 Virgin Media is already present in most of Area 2, and it plans to both extend its coverage in Area 2 and upgrade its network to gigabit-capable over the next few years. Therefore, in addition to planned network build in Area 2, we already have an existing material and sustainable competitor present in many parts of Area 2, and we believe that it is right that our remedies reflect this. Approach in areas where material and sustainable network competition is unlikely (Area 3) 1.14 In these areas our objective is to promote investment in gigabit-capable networks by Openreach. We also seek to promote competition based on access to Openreach’s networks and protect consumers. 3 2021 WFTMR Volume 3: Non-pricing remedies 1.15 Accordingly, our approach is to set appropriate investment incentives for Openreach. We consider that a Regulatory Asset Base (RAB) approach could incentivise Openreach to invest in a fibre network in Area 3 since it provides more certainty of cost recovery. This is because the costs of the fibre investment can be recovered across a wider range of services, including the existing regulated copper services. 1.16 In June 2020, Openreach committed to build fibre commercially (i.e.