BT 2009 Annual Report Download - page 29

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW
BUSINESS AND FINANCIAL REVIEWS OTHER MATTERS
27BT GROUP PLC ANNUAL REPORT & FORM 20-F
BUSINESS AND FINANCIAL REVIEWS
Significant market power charge controls
As a result of SMP designations, the charges we can make for a
number of wholesale services are subject to the following
regulatory controls:
network charge controls (NCC) on wholesale interconnect
services – we operate under interconnection agreements with
most other CPs. Our charges for interconnect services are
controlled by Ofcom, under the NCC regime. These controls are
designed to ensure that our charges are reasonably derived from
costs, plus an appropriate return on capital employed. Ofcom is
currently reviewing the charge control to take effect for four
years from 1 October 2009 and is consulting on a range of
options where charges would be allowed to increase by more
than inflation
partial private circuits (PPC) charge controls applying to certain
wholesale leased lines that BT provides to other network
operators. Ofcom has consulted on proposals for new controls to
apply from 1 October 2009 and is expected to issue its final
decision in the first quarter of the 2010 financial year
Ofcom is proposing to introduce charge controls on BT’s
provision of wholesale Ethernet access and backhaul services at
bandwidths of 1Gb or below from 1 October 2009. Again,
Ofcom’s final decision on these controls is expected in the first
quarter of the 2010 financial year
Ofcom has also been consulting on regulatory controls governing
the charges Openreach applies to the provision of local loop
unbundling (LLU) services and wholesale line rental (WLR). Ofcom is
expected to publish a statement shortly setting out its conclusions
on LLU charges and issue a further consultation on WLR charges.
BT’s Undertakings
In response to Ofcom’s 2005 strategic review of
telecommunications, we proposed a number of legally binding
Undertakings under the Enterprise Act 2002 (Enterprise Act). These
Undertakings, which included the creation of Openreach, were
accepted by Ofcom and came into force in September 2005. The
Undertakings are intended to deliver clarity and certainty to the UK
telecommunications industry about the way BT will provide
‘upstream’ regulated products to support effective and fair
competition in related ‘downstream’ markets. This, in itself, should
lead to a reduction in the need for regulation in those competitive
downstream markets over time.
BT is in discussion with Ofcom and the wider communications
industry about the remaining Undertakings in the context of changing
industry priorities and systems capacity. Any proposed changes will be
subject to consultation during the 2009 calendar year.
Next generation access regulation
In March 2009, following consultation, Ofcom published a policy
statement setting out a regulatory framework for next generation
access (NGA). This gave sufficient regulatory certainty for BT to
proceed with the initial phase of our super-fast broadband roll out
and we will continue to work with Ofcom as our plans develop.
Regulation outside the UK
BT must comply with the regulatory regimes in the countries in
which we operate and this can have a material impact on our
business.
European Union
Communications regulation in each EU country is conducted within
the regulatory framework determined by EU directives, regulations
and recommendations. The manner and speed with which the existing
directives have been implemented vary from country to country.
National regulators are working together in the European Regulators
Group to introduce greater harmonisation in their approach to the
assessment of SMP and the imposition of appropriate remedies.
BT does not have universal service obligations outside the UK,
although in certain member states we may be required to
contribute towards an industry fund to pay for the cost of meeting
such obligations.
The European Commission formally investigated the way the UK
Government set BT’s property rates and those paid by Kingston
Communications, and whether or not the UK Government complied
with European Community Treaty rules on state aid. It concluded
that no state aid had been granted. The Commission’s decision has
now been appealed, but we continue to believe that any allegation
of state aid is groundless, and that the appeal will not succeed.
The rest of the world
The vast majority of the communications markets in which we
operate around the world are subject to regulation, and in most of
these we have to meet certain conditions and have had to obtain
licences or other authorisations. The degree to which these markets
are liberalised varies widely, which means that our ability to
compete fully in some countries is constrained. We continue to
press incumbent operators and their national regulatory authorities
around the world (including in the EU) for cost-related wholesale
access to their networks where appropriate and for advance notice
of any changes to their network design or technology which would
have an impact on our ability to serve our customers.
Competition
UK market trends
Broadband take up in the UK is slowing as the market matures and
reaches high levels of penetration. However, usage is growing,
driven for example by the increased popularity of peer-to-peer
applications and of services such as the BBC iPlayer and BT Vision.
Mobile broadband has also been a focus for many of the mobile
operators as the voice and text markets approach saturation.
Broadband providers are now expected to deliver an excellent level
of service in addition to a range of applications and products
tailored to the individual needs of customers.