BT 2010 Annual Report Download - page 40

REVIEW OF THE YEAR
38 BT GROUP PLC ANNUAL REPORT & FORM 20-F
Regulation
Innovation in communications markets continues at a high level,
driven by consumer needs and new technology. Convergence is
maturing, and consumers routinely buy bundles of fixed, mobile,
broadband and TV services. In July 2009, we announced our
ambitious plans for fibre-based broadband deployment,
underpinned by significant investments. The UK communications
market is highly competitive and as a result, in 2010 many of our
retail services were deregulated (see Significant market power
designations). Regulatory evolution needs to keep pace with these
developments, allowing further deregulation where effective
competition exists, encouraging investment and rewarding risk-
taking in new markets such as fibre-based broadband, and ensuring
that any new regulation is only applied where necessary.
Regulation in the UK
Electronic communications regulation in the UK is conducted within
a framework set out in various EU directives, regulations and
recommendations. The framework was recently reviewed
and amended directives are expected to be implemented by late
May 2011 in the UK and other EU member states.
Ofcom
Ofcom was set up under the Office of Communications Act 2002 to
provide a single, seamless approach to regulating the entire UK
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
OTHER INFORMATION
Other information
Regulation
Our relationship with HM Government
Legal proceedings
Acquisitions and disposals
regulates the provision of premium rate services. The Electronic
Communications Code applies to all CPs authorised to carry out
streetworks and similar activities for network provision. It requires
CPs with apparatus on or in the public highway to identify potential
liabilities and, where appropriate, 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.
BT has provided the required certificate of compliance to Ofcom in
accordance with this requirement.
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.
We understand that the UK Government’s plans for the digital
economy, prior to the May 2010 election, are expected to create a
fund of £200m that will be available via competitive tender to
bidders in order to deliver the Government’s universal service
commitment (USC) to provide a 2Mb/s broadband connection. This
is not part of BT’s USO, but BT is likely to be one of the providers
eligible to bid for such funds. The procurement process for allocation
of the funds for the USC is currently expected to be administered by
a new Government body known as Broadband Delivery UK.
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. In 2010
Ofcom completed its market review of fixed narrowband retail
services in relation to the supply of consumer and business
telephone lines and voice calls. Ofcom concluded that BT no longer
had SMP in these markets (except for digital exchange lines,
although Ofcom is currently consulting on a market review/charge
control for ISDN30 lines), which resulted in BT having greater
freedom to package and price those services as we choose. Ofcom
also completed its review of wholesale narrowband services
markets and concluded that BT retained SMP in certain defined
markets – for example, the provision of wholesale exchange lines,
call origination and interconnect links – but not in local-to-tandem
conveyance where BT’s activities became deregulated. BT is also
deemed to have SMP in other markets such as wholesale leased
lines. In the 2010 calendar year, Ofcom will conduct market
reviews, which are currently underway, of the Wholesale Local
Access (WLA) and the Wholesale Broadband Access (WBA) markets,
covering products such as LLU and IPStream. Ofcom’s WLA
proposals include new obligations on BT to provide a fibre-based
Virtual Unbundled Local Access (VULA) product and an obligation
to share our ducts and poles for fibre-based broadband purposes.
Openreach already offers a product that we believe meets the
requirements for VULA and we have said BT will share its ducts and
poles with other CPs. In the WBA market, Ofcom proposes to
increase the size of the mainly urban deregulated geographic
market, and to introduce price regulation in the remainder of the
country with a price control to cover rural areas.