By Simon Woodhead
Less than two months ago, Ofcom published its findings in the Wholesale Voice Markets Review (WVMR). We’ve commented already on the process and some of the key points in “WVMR 2021-2026: A waste of time?“ but there is one section worth revisiting.
Ofcom stated, “we do not agree with Simwood” in response to our submission that they had erred in their conclusion that Original Range Holders have the ability to dictate to the networks who host them, which is misinformed. We suggested it was the hosts who had more market power – i.e., Ofcom should regulate us, not our customers. Not only does that mirror our experience in the industry, but life also gets easier for everyone in many respects if they do. They stuck to their guns, perhaps because agreeing with us would have required a change of course from the pre-agreed findings of the “consultation.”
We also made the point that while hosting networks might have more market power, nothing happens without BT’s blessing – indeed, they are in another league with respect to Significant Market Power. BT must give permission for rate changes and simply will not build a number range on their network if they disagree with the rate proposed. They still have a substantial market share (despite their best efforts) and therefore, their refusal is as good as final. In fact, within days of the WVMR Statement we had a rate amendment from BT (an Operator Charge Change Control or OCCN), reducing our rates, not theirs, to ensure we were compliant with Ofcom’s price caps. It did not really matter whether we agreed or not as they explicitly stated they would not be paying more. In fact, the wording on the OCCN even suggested they would not afford any operators the right to enjoy the reciprocity afforded to them by Ofcom for internationally originated calls from high termination rate countries. Arguably, if this is carried out, puts them in breach of their own contractual obligations for paying the charges before an Ofcom decision. Indeed, taking it a step further, the Geiger counter of hypocrisy is off the charts, given BT were on the beneficial end of an appellate court judgment stating that payments were due for rates in contract in the SIA even if they were disagreed with. Paragraph 456 if you are interested.
So, we still think we’re right but as if to add fuel to the fire of Ofcom’s apparent detachment from reality, Vodafone have taken advantage of the conditions in the WVMR that enable them to surcharge calls to their ranges much higher than the price caps. We’ve discussed that already too, but this is an interesting example of market power.
Vodafone is huge, bigger than BT in fact – nearly 2.5x in market capitalisation terms. Now, while Vodafone is somewhat bigger than a one-man-band with a few number ranges (who also apparently has Significant Market Power and not their host), it would appear to vindicate Ofcom’s basic position. Or does it?
You see, Vodafone can impose its increased rates on pretty much anyone it is interconnected with, and we’ve just had to suck it up (although in many non-BT interconnection agreements, the reciprocal position is also true, with the large operators having to suck it up in the other direction). Word is though, BT have (to date at least) refused, which if correct means they will not be paying the surcharges.
Simwood (and others) warned Ofcom of this in the WVMR consultation. Here’s Ofcom’s response;
6.148 BT cooperation required to apply reciprocal WTR: It is the responsibility of telecoms providers to ensure that their commercial arrangements, including those with their transit providers, allow them to comply with their regulatory obligations in relation to their termination rates.
At a technical level, the reason BT are able to do this is because of the disparity between paragraphs 12 and 13 of the Standard Interconnect Agreement. Paragraph 12 means the counterparty must accept rate changes for BT services imposed by BT, whereas paragraph 13 means that BT must give its blessing in the other direction.
For Ofcom to say that it is the responsibility of telecoms providers completely overlooks that it is Ofcom themselves that gave their blessing to this mismatch on 15th August 2013 when resolving a dispute between (ironically) EE and BT that sought to remedy it. Pete Farmer will tell me the disparity is not all downside; it does, for example, mean that BT is our first line of defence against scrotes playing nefarious games. In this case, though, this is not scrotitude – it’s a legitimate, global company, seeking to avail itself of the rights granted to it by Ofcom.
Furthermore, what does that do for competition? Is an operator such as Simwood going to send traffic directly to Vodafone and risk a surcharge in the tens of pence, or do we send it to BT and pay a (somewhat) predictable premium? This wins BT revenue for sure, but what if BT decides to hedge their risk and increase the prices on their own in a manner which is not passed on to Vodafone. They can do this as transit is not regulated – something else we may have mentioned. If this price is at a lower level than Vodafone’s, even fractionally, they create windfall margin on windfall volume.
Apparently, the transit market is competitive to the point where such behaviour is constrained – and has been in various degrees since 2009. BT didn’t get that memo from Ofcom, clearly.
So, we have a position, where BT have apparently refused an allegedly legitimate rate increase of a competitor 2.5x its size, whilst the rest of the market must stomach it. In doing so, BT has potentially manoeuvred itself to increase its transit business. Who has the Significant Market Power there?
Of course, there are two potential issues with Vodafone’s surcharges – it could be that BT has raised its scrote forcefield on this and we’ve done them a grave disservice – however, this feels different to the usual ‘trying it on with above MTR mobile rates’ sort of thing. In that case, I’ll have some of what Ofcom is taking!