EC Urges Ofcom Action

BRUSSELS -- The European Commission has called on the UK regulatory authority for telecommunications, the Office of Communications (Ofcom), to impose appropriate price control and non-discrimination obligations on all communication providers regarding their fixed termination rates (FTRs). FTRs are the wholesale prices which fixed operators charge for terminating calls on their respective networks. Non-discrimination obligations for alternative providers are necessary to ensure that they apply equivalent conditions in equivalent circumstances. In line with the Commission's Recommendation on Termination Rates ( IP/09/710 ), an effective price control obligation leading to cost oriented termination rates is the most appropriate way to address the competition problems in this market.

Competition Commissioner Neelie Kroes said, "Non-discrimination and price control for all UK communication providers would ensure lower termination rates and a level playing field for all fixed phone operators to the benefit of competition and consumers in the UK."

Viviane Reding, the EU Telecoms Commissioner said, "In the absence of effective regulation also of smaller fixed network operators, these operators are able to charge high termination rates which translate into higher call prices for the consumers of other fixed and mobile operators wanting to call the subscribers of these smaller networks. For these reasons I trust that Ofcom will consider our advice and bring the regulation of smaller fixed line operators in the UK in line with standard European practice."

Until now, alternative fixed network operators were only obliged to provide termination services on fair and reasonable terms. Ofcom does not intend to price regulate the termination services of communication providers (CPs) other than British Telecom (BT) and Kingston Communications (KCOM) or to impose a non-discrimination obligation. CPs are merely required, in addition to the previous obligation of providing access, to publish their termination charges in order to guarantee transparency. These charges are generally set by way of a "Reciprocity Agreement", whereby termination rates are principally based on BT’s charges. However, there is scope within this agreement for charges to vary based on different network topologies of the CPs and Ofcom only intervenes in setting the termination rates of alternative operators in case of a dispute.

The Commission today highlighted the fact that alternative CPs are monopolists for the termination of calls on their networks and normally have the ability and incentive to raise termination rates above costs and/or to set differentiated charges, thereby placing competitors at a disadvantage. Commercial agreements cannot normally address this potential market failure in the termination markets. Therefore, regulatory authorities in the EU generally also impose a non-discrimination obligation on alternative CPs. In addition, as recalled in the Commission Recommendation 2009/396/EC (see IP/09/710 ), price control obligations are considered the most appropriate intervention to address the competition problems in these markets.

The Commission emphasised that dispute resolution procedures, as foreseen by Ofcom, may not be sufficient to remedy a potential market failure in an efficient way.

The Commission also emphasised that termination rates should be set at the level of costs incurred by an efficient operator and therefore should normally be symmetric. Any deviation from a single efficient cost level should be based on objective cost differences outside the control of the operators concerned.

The Commission's letter urges Ofcom to impose an adequate ex ante price control and a non-discrimination obligation on all CPs. It invites Ofcom to implement cost-orientation in an efficient manner, by way of a measure which does not impose an undue procedural burden on alternative CPs but sets efficient cost-based termination rates for all operators to the benefit of competition and consumers.

European Commission