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BMCR: Final Statement

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BMCR: Final Statement Business Connectivity Market Review – Annexes 14 to 25 Review of competition in the provision of leased lines Redacted for publication Statement Published: 28 April 2016 Business Connectivity Market Review Contents Annex Page 14 TI Trunk 3 15 CI core 24 16 Local and national markets and our approach to geographic market definition 62 17 Profitability analysis 80 18 Benefits of a dark fibre remedy 91 19 Risks of a dark fibre remedy for BT and users of its network 137 20 Impact of dark fibre on rival investment 173 21 Approach to pricing dark fibre 201 22 Design of the dark fibre remedy 247 23 Dark fibre pricing 268 24 Guidance on assessment of BT’s pricing of Dark Fibre Access 315 25 Glossary 322 2 Business Connectivity Market Review Annex 14 14 TI Trunk Introduction A14.1 As set out in section 5, we have decided that no operator has SMP in the provision of wholesale national TI trunk segments at all bandwidths in the UK. We have also decided that segments identified as regional trunk should be included in the market for low bandwidth TISBO services. A14.2 This annex explains in more detail our conclusions on the location of trunk nodes that we use to set the boundary between TI trunk and terminating segments. We explain the basis for our conclusion that we should define this boundary on the same basis as identified in the March 2013 BCMR Statement. Declining volumes in the TI market mean there has been no material investment in interconnection by OCPs, and instead many OCPs have rationalised their own networks by reducing the number of points at which they interconnect with BT since the March 2013 BCMR Statement. As a result, we consider the market for TI trunk will not have changed materially since the last review in a way that would justify a change to the method we use to set the boundary between TI trunk and terminating segments. A14.3 This annex also explains the basis for our decision to include, in the TI terminating segments market, segments defined as regional trunk in the March 2013 BCMR Statement. We explain that competitive conditions in the provision of circuits previously classified as regional trunk circuits and in the provision of terminating segments are sufficiently similar for both to be included in the TI terminating segments (TISBO) market. This is because both circuit types are relatively short- distance circuits enabling a CP to serve an end-user’s premises by connecting it to the nearest BT node at which it has a point of handover. In addition, estimates of BT’s service shares are consistent with competitive conditions for regional trunk segments being similar to those for terminating segments. As discussed in Section 5, we find BT to have SMP in the low bandwidth TISBO market including regional trunk segments. A14.4 The structure of this annex is as follows: first, we describe trunk segments and some of the concepts used to define them in previous reviews; second, we summarise the proposals we made in the May 2015 BCMR Consultation and stakeholders’ responses; and finally, we respond to stakeholders’ responses to the consultation and set out our final conclusions. Background on previous definitions Trunk segments A14.5 National trunk segments are the links between major centres of demand such as towns and cities. These links can support sufficient volumes of aggregated traffic to allow a number of OCPs to generate the economies of scale necessary for them to build competing trunk networks. In some circumstances, particularly over longer distances, these competing trunk networks can be used to supply leased lines. This means that a CP providing a retail TI service may still rely on BT to provide local connections (terminating segments) but it will be less reliant on BT to provide trunk segments between urban centres. 3 Business Connectivity Market Review A14.6 As set out in the Explanatory Note to the EC Recommendation, these national trunk segments are presumed competitive and in a market not susceptible to regulation: “…[a] clear distinction between the terminating and trunk segment is important as the market for wholesale trunk segments of leased lines has been removed from the list of markets susceptible to ex ante regulation in the 2007 Recommendation. Nowadays, almost all Member States have deregulated this wholesale market for trunk segments. Therefore the presumption that trunk segments are replicable on a national scale remains valid. Consequently, NRAs should not revisit their analysis of trunk segments of leased lines where these have been previously found to be effectively competitive. This assumption does not exclude, however, that individual NRAs might find that certain trunk routes fulfil the three criteria and thus warrant ex ante regulation.”539 A14.7 Accordingly, we found national trunk to be competitive in our last review. However, identifying national trunk segments in the BCMR is still an important step to establish the extent of the TI terminating segments market. A14.8 For the reasons explained below, we also identify certain trunk segments that we call regional trunk. In 2013, regional trunk was defined as a separate market in which BT had SMP. We are therefore required to review this market again in this review. We used TANs to identify the boundary between trunk and terminating segments A14.9 In both the 2008 and BCMR 2013, to identify the boundary between trunk and terminating segment markets we identified so-called Trunk Aggregation Nodes (TANs). A14.10 We observed that in large urban centres (like London, for example) BT has multiple major nodes. Other scale CPs also have a core of trunk routes between major urban centres (but to a lesser extent than BT). These CPs often interconnect with BT at least at one major exchange (and sometimes more than one exchange) in each major urban centre. A14.11 For TI markets, we used some of BT’s major nodes (67 Tier 1 nodes)540 as the basis for defining TANs. We grouped some (but not all) of the 67 Tier 1 nodes into TANs. We identified 46 TANs for the TI market in the 2008 BCMR. We based our identification of the relevant TANs on an assessment of aggregation opportunities for CPs other than BT. Our reasoning was that other CPs would be unlikely to aggregate their traffic back to points of interconnect at each and every Tier 1 node (or at an equivalent point on their own network). Grouping Tier 1 nodes in one region into a common TAN meant that a CP only needed to interconnect with BT at 539 Explanatory Note to the EC Recommendation, page 49. 540 BT’s SDH network is split into a hierarchy of Tier 1, Tier 2 and Tier 3 nodes. There are fewer Tier 1 nodes (67) relative to Tier 2 and Tier 3 nodes. 4 Business Connectivity Market Review any one of those nodes to aggregate traffic from its end-users throughout the region by using regulated terminating segments from BT. A14.12 Taking as the starting point BT’s Tier 1 nodes, we identified TI TANs by looking at two main pieces of information for TI services: • the extent of interconnection by CPs;541 and • the number of circuits potentially served by a particular node and its proximity to another Tier 1 node. A14.13 For example, in the Birmingham area there were two Tier 1 nodes close to each other. Based on the volume of traffic served in the Birmingham area and the close proximity of those nodes we grouped these nodes into the “Birmingham TAN”. This was based on the notion that a reasonably sized CP would choose to interconnect with at least one Tier 1 node, but not necessarily both. A14.14 In London, we identified more than one TAN reflecting the greater volume of traffic in the capital. Hence, even if some Tier 1 nodes were relatively close to each other, it would be likely that a reasonably sized CP would interconnect in more than one location in the capital. A TAN therefore represents a group of one or more of BT’s Tier 1 network nodes. A14.15 We considered that these TANs continued to be an appropriate basis to identify trunk segments in the March 2013 BCMR Statement.542 TI TANs had a ‘catchment area’ A14.16 Although a TAN is a group of major network nodes, for each TI TAN we relied on the “catchment area” of each TAN to assess which circuits would require a trunk segment based on whether the circuit ends are in different catchments areas. A14.17 Catchment areas were originally identified by BT for each of its Tier 1 nodes, so the TI TAN catchment areas represents all of the smaller exchanges and customer end- points that the major Tier 1 nodes are assumed to serve (as set out in Figure A14.1 below). 541 Based on TI interconnection services known as point of handover links. 542 2013 BCMR Statement, Section 6. 5 Business Connectivity Market Review Figure A14.1: Catchment areas and circuit routing assumptions A14.18 In both the 2008 and BCMR 2013, we defined any circuit linking A and B-ends in different TAN catchment areas as containing a trunk segment. In our market definition for TI trunk, we also assumed that a circuit between catchment areas was routed via the Tier 1 nodes, even if actual routing on BT’s network was different to this. For example, in the lower left of Figure A14.1 above, we show an OCP purchasing a wholesale circuit from BT between the Brighton catchment area (4) and the Reading catchment area (37).
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