BT 2010 Annual Report Download - page 41

REVIEW OF THE YEAR OTHER INFORMATION
39BT GROUP PLC ANNUAL REPORT & FORM 20-F
ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS REVIEW OF THE YEAR OVERVIEW
SMP charge controls
As a result of SMP designations, the charges we can make for a
number of wholesale services are subject to regulatory controls
which are designed to ensure that our charges are reasonably
derived from costs, plus an appropriate return on capital employed.
These include:
network charge controls (NCC) on wholesale interconnect
services – we operate under interconnection agreements with
most other CPs
partial private circuits (PPC) charge controls applying to certain
wholesale leased lines that BT provides to other network
operators
certain wholesale Ethernet access and backhaul services
LLU and WLR.
Regulatory decisions by Ofcom are liable to appeal. Other CPs are
currently appealing Ofcom decisions on wholesale leased lines, LLU
and WLR charge controls.
Ofcom is currently consulting on market reviews/charge controls
for ISDN30 and WBA (see Significant market power designations
on page 38).
In December 2009, Ofcom published a consultation document
about how BT’s costs of providing pensions benefits should be
treated in regulatory charges. Ofcom is expected to consult further
later in the 2010 calendar year, and conclude its review towards the
end of the year. Ofcom would then look to implement any revised
approach in setting charge controls moving forward.
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. Ofcom acknowledges that BT's delivery of
the Undertakings has enabled deregulation in more competitive
downstream markets. The Undertakings do need to evolve in light
of market developments and variations have been agreed in 2010
to assist delivery of fibre-based broadband, and to reschedule
timescales for the delivery of operational systems separation and
the migration of BT's installed base to the same, equivalent base as
other CPs.
Business rates
The European Commission formally investigated the way the UK
Government set the rates payable on BT’s infrastructure and those
paid by Kingston Communications, and whether or not the UK
Government complied with European Community Treaty rules on
state aid. The Commission concluded in October 2006 that no state
aid had been granted. The Commission’s decision was appealed.
Judgement on the appeal has not yet been given but we continue
to believe that any allegation of state aid is groundless and that the
appeal will not succeed.
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 Body of
European Regulators for Electronic Communications to introduce
greater harmonisation in their approach to the assessment of SMP
and the imposition of appropriate remedies. BT does not have USO
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 rest of the world
The vast majority of the communications markets in which we
operate around the world are subject to regulation. The degree to
which these markets are liberalised varies widely, and our ability to
compete is constrained, to a greater or lesser degree, in many
countries. We continue to press incumbent operators and their
national regulatory authorities around the world (including in the
EU) for cost-related non discriminatory 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 law
In addition to communications industry-specific regulation, BT is
subject to the Competition Act 1998 (Competition Act) in the UK
and to EU competition law.
Our relationship with HM Government
We can be required by law to do certain things and provide certain
services for the UK Government. For example, under the
Communications Act, we (and others) can be required to make and
implement plans for the provision or restoration of services in
connection with disasters. Additionally, under the Civil
Contingencies Act 2004, the UK Government can impose
obligations on us (and others) at times of emergency and in
connection with civil contingency planning. Also, the Secretary of
State can require us to take certain actions in the interest of
national security and international relations.
Legal proceedings
We do not believe that there is any single current court action that
would have a material adverse effect on the financial position or
operations of the group. However the aggregate volume and value
of legal actions to which we are a party has increased significantly
during 2010.
There have been criminal proceedings in Italy against 21
defendants, including a former BT employee, in connection with
the Italian UMTS (universal mobile telecommunication system)
auction in 2000. Blu, in which BT held a minority interest,
participated in that auction process. On 20 July 2005, the former
BT employee was found not culpable of the fraud charge brought