BT 2009 Annual Report Download - page 28

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW
26 BT GROUP PLC ANNUAL REPORT & FORM 20-F
BUSINESS AND FINANCIAL REVIEWS
Regulation
BT operates in a dynamic and competitive environment both in the
UK and around the world. Innovation is accelerating, driven by
customer demand. Products and services are evolving and
converging, supported by increasingly sophisticated networks.
Service bundles offering fixed and mobile telephony, broadband
and television are available from an increasing number of suppliers.
We believe that, in such a climate, regulation must deliver a level
playing field in the UK which allows companies across the fast-
moving and converging markets to compete on equal terms, and
makes sure that new monopolies are not allowed to emerge. We
also need regulation to move at the same speed as the market is
evolving such that regulation is only applied where necessary.
Otherwise, there is a real risk that innovation and investment could
be stifled.
Regulation in the UK
Electronic communications regulation in the UK is conducted within
a framework set out in various European Union (EU) directives,
regulations and recommendations. The framework is currently under
review and new directives are expected to take effect by 2011.
Ofcom
Ofcom (the Office of Communications) was set up under the Office
of Communications Act 2002 to provide a single, seamless
approach to regulating the entire communications market. Its
principal duties are to further the interests of citizens in relation to
communications matters and to further the interests of consumers
in relevant markets, where appropriate by promoting competition.
Ofcom regulation takes the form of sets of conditions laid down
under the Communications Act 2003 (Communications Act), and
directions under these conditions. Some conditions apply to all
providers of electronic communications networks and services;
others apply to individual providers, which Ofcom has designated
as universal service providers or having significant market power
(SMP) in a particular market.
Conditions applying to all providers
Although these general conditions are concerned mainly with
consumer protection, they also include requirements relating to
general access and interconnection, standards, emergency
planning, the payment of administrative charges, the provision of
information to Ofcom and numbering. A separate condition
regulates the provision of premium rate services.
The Electronic Communications Code applies to all
communications providers (CPs) authorised to carry out streetworks
and similar activities for network provision. It requires electronic
CPs with apparatus on or in the public highway to make financial
provision to cover any damage caused by work they carry out, and
for the removal of their networks in the event of liquidation or
bankruptcy. This has been provided for the period to 31 March
2010.
Conditions applying to BT
Universal service obligations (USO) are defined in an order issued
by the Secretary of State. BT is the designated supplier of universal
service for the UK, excluding the Hull area where Kingston
Communications is the designated provider. Our primary obligation
is to ensure that basic fixed-line services are available at an
affordable price to all citizens and consumers in the UK. Other
conditions relate to payphones and social needs schemes.
Ofcom is scheduled to conduct a review of the narrowband USO
in 2009, including whether it is still appropriate for BT to bear the
entire cost of meeting the USO or whether there should be some
contribution from the broader industry.
It should also be noted that in its ‘Digital Britain’ interim report
(January 2009), the UK Government set out its objective to develop
plans for commitments around universal service covering
broadband services to be effective by 2012. We are working closely
with the UK Government, Ofcom and the wider communications
industry on these plans, which we expect will be published more
fully in the summer of 2009.
Significant market power designations
Ofcom is also required by EU directives to review relevant markets
regularly and determine whether any CP has SMP in those markets.
Where Ofcom finds that a provider has SMP, it must impose
appropriate remedies, that may include price controls. At 31 March
2009, as a result of previous market reviews, BT was deemed to
have SMP in a number of markets.
However, Ofcom is in the process of consulting on SMP
designations in both the retail and wholesale narrowband services
markets. Its review of fixed narrowband retail services relates in
particular to the supply of consumer and business telephone lines
and voice calls. In the course of this review, Ofcom has proposed
that BT no longer has SMP in these markets and that if Ofcom
finalises its proposals, this would result in BT having greater
freedom to package and price those services as we choose.
Ofcom is also currently reviewing wholesale narrowband services
markets. It has proposed that while BT will retain SMP in certain
defined markets – for example, the provision of wholesale
exchange lines, call origination and interconnect links – in other
markets, such as local-to-tandem conveyance and single tandem
transit, SMP would be removed and BT’s activities deregulated.
Ofcom’s consultation on both the retail and wholesale narrowband
services market review will close on 28 May 2009 and Ofcom will
issue a statement later in the year setting out its conclusions.
In May 2008, Ofcom removed BT’s SMP designation in relation to
the provision of wholesale broadband access services in defined
geographic areas of the UK (defined as ‘Market 3’). This followed
Ofcom’s finding that effective competition in the provision of
broadband in these areas had resulted from cable companies and
CPs purchasing unbundled local loops from Openreach. All previous
regulation of BT’s wholesale activities in relation to broadband
services in these areas was therefore removed.
OTHER MATTERS
BUSINESS AND FINANCIAL REVIEWS