Openreach’s response to Ofcom’s consultation “Dark Fibre Consultation: Consultation on adding dark fibre to the remedies for business connectivity markets” NON-CONFIDENTIAL VERSION FOR PUBLICATION 29 December 2017 Comments on this response should be sent to: Mark Shurmer, Managing Director, Regulatory Affairs via email [email protected] or Mike Fox, Senior Regulatory Strategy Analyst, Regulatory1 Affairs via email [email protected] NON-CONFIDENTIAL VERSION FOR PUBLICATION Table of Contents 1. Executive Summary .......................................................................................................................... 4 2. Overview ............................................................................................................................................ 8 3. Legal Process .................................................................................................................................. 17 4. Market Definition and SMP Assessment ...................................................................................... 27 5. The Proposed Dark Fibre Remedy ................................................................................................ 56 A. The legal tests Ofcom has to meet to impose the DFA Remedy ................................................. 56 B. Openreach’s views on Ofcom’s assessment of the benefits, risk and costs of the proposed DFA remedy ................................................................................................................................. 62 C. Ofcom’s failure to consider the impact of PIA and the CID………………………………………….89 D. The design and implementation of the proposed new DFA product ............................................ 91 E. The impact of DFA on the LLCC................................................................................................... 95 6. Non Dark Fibre SMP Remedies ................................................................................................... 103 7. Legal Instruments ......................................................................................................................... 116 Annexes ............................................................................................................................................. 119 2 NON-CONFIDENTIAL VERSION FOR PUBLICATION Foreword On 23 November 2017, Ofcom published a consultation (“the DFA Consultation”) on proposals to add a Dark Fibre Access (“DFA”) remedy to the package of remedies (“the BCMR Temporary Conditions”) which it had already imposed on BT for the period up to 31 March 2019 in markets for the provision of wholesale leased lines at bandwidths at and below 1G (“Lower Bandwidth CISBO”) in specific geographic markets. The DFA Consultation also seeks views on the definitions of these markets and findings of Significant Market Power (“SMP”) in them, which were made using Ofcom’s emergency powers under the Communications Act 2003 (“CA 2003”): these were set out in a Statement also published on 23 November 2017 entitled “Business Connectivity Markets – Temporary SMP conditions in relation to business connectivity services” (“the 2017 BCMR Statement”). As well as setting out Openreach’s views on the proposed dark fibre remedy and Ofcom’s market definitions and SMP findings, this response also sets out our views on remedies imposed via the 2017 BCMR Statement, although we note Ofcom is not formally consulting on these remedies. We have sought in this consultation response to provide as much detail and evidence as possible in order to assist Ofcom but, given the very short timescales for responding to a consultation of this nature, we simply have not been able to gather all that we would have done given adequate time to respond. We will continue to gather and prepare additional evidence following submission of this response and will provide it to Ofcom as soon as is practicable. This response to the DFA Consultation is provided by Openreach. BT fully supports and endorses this response: BT shares all the views expressed by Openreach on the issues under consultation. Openreach has consulted with BT on the preparation of this consultation response, as parent company of Openreach, and given that (i) the SMP remedies under consultation would directly apply to BT plc and (ii) BT plc was the appellant of the CAT appeal of the previous BCMR decision (and would be the appellant of any appeal of a decision following this DFA Consultation).1 In addition, BT has contributed to the substance of this response as supplier of services to Openreach. 1 In light of these factors, some references in this response are to BT rather than Openreach. 3 NON-CONFIDENTIAL VERSION FOR PUBLICATION 1 Executive Summary 1. At Openreach, we recognise that businesses throughout the UK rely on leased lines as essential components of their communications systems, and to support the provision of mobile telephone and fixed residential broadband services. Openreach fully supports, and indeed shares, Ofcom’s main objectives to ensure efficient outcomes for consumers, to promote effective competition and to foster innovation in the interests of consumers. 2. However as we show below, we believe Ofcom is misguided in seeking to impose a new dark fibre remedy on the basis of market definitions and SMP assessments which were carried out for the purpose of imposing temporary and urgent SMP remedies in light of the Competition Appeal Tribunal’s (“CAT”) judgment in BT’s appeal against Ofcom’s 2016 Business Connectivity Market Review (“BCMR”). 3. Dark fibre is a highly contentious and entirely new remedy, the imposition of which (following a change in Ofcom’s position) was challenged by a number of parties in the CAT. 4. The grounds of appeal directed at the dark fibre remedy were not determined because Ofcom’s market analysis was found by the CAT to be unsound with the result that the dark fibre remedy was to be quashed in any event. It was expected that, following the Tribunal’s judgment, Ofcom would correct its erroneous market analysis, and then consider the appropriate package of remedies to address any competition concerns identified in that analysis. It has failed to do so, but is nonetheless seeking to impose a controversial dark fibre remedy. 5. Ofcom proposes to modify the BCMR Temporary Conditions to add a dark fibre remedy to the package of remedies already imposed; a proposal announced two weeks after the publication of the CAT’s full judgment. This is not an appropriate approach: this is a completely new remedy (and one which has been explicitly challenged) not a simple “modification” of existing remedies. Its imposition, absent a proper market analysis, would be unlawful. 6. Further, this measure cannot be imposed following such a severely constrained approach to consultation and engagement. A five week consultation (ending on 29 December) for a measure which has a significant impact on Openreach and other parties, and is effectively irreversible due to the changes it would invoke in CPs’ business models and investment plans, is patently unfair and inconsistent with established Ofcom and EC guidelines and policies. 7. There is no urgent need to impose dark fibre that justifies the rushed and unfair process that Ofcom is adopting. Other “tried and tested” network access remedies that have proved highly effective in constraining market power and promoting competition are in place until April 2019. 8. It appears to us that Ofcom is attempting to resurrect a remedy it imposed following the flawed and unlawful 2016 BCMR, rather than considering matters afresh, with an open mind, following a thorough market analysis. Ofcom ought to have reconsidered the place of this remedy within a package of remedies and its appropriate scope of application (if any), having conducted a lawful market analysis which complies with the terms of the CAT’s judgment and takes utmost account of the Commission’s Notice on Market Definition and SMP Guidelines. 9. A full reconsideration by Ofcom is required in order to: properly identify those markets in which Ofcom considers there to be competition issues to address; and properly assess whether dark fibre is required above and beyond the other network access remedies which Ofcom requires BT to provide. 10. Ofcom’s market analysis, by its own admission, is partial and incomplete pending full consideration of the remitted matters. Ofcom continues to rely on its findings in 2016 BCMR (which itself was based on data gathered in 2014 and 2015) subject to a number of quick fixes to deal with the Tribunal’s criticisms (for example, by defining the Lower Bandwidth CISBO market). 11. There was less than two weeks between the handing down of the CAT’s judgment and the publication of the 2017 BCMR Statement and this DFA Consultation. Ofcom’s market analysis (and the application of these quick fixes) must have been undertaken, therefore, without the 4 NON-CONFIDENTIAL VERSION FOR PUBLICATION benefit of the CAT’s thorough analysis of Ofcom’s earlier errors (i.e. it was prepared on the basis of supposition). 12. These quick fixes do not, as claimed by Ofcom, identify markets in which Ofcom can be “sure” that BT has SMP. A number of key product and geographic market issues have not been sufficiently investigated, the CAT’s recommendations have not been fully and properly reflected, and the information on which Ofcom relies is largely out of date. A full analysis of these issues might prove Ofcom’s temporary finding