Brussels, 14 February 2008
The Commission has approved today the proposal of the UK telecoms regulator Ofcom to de-regulate the wholesale broadband market in some parts of the UK, covering around 65% of all UK homes and businesses This is the first time that a national telecoms regulator in the EU has identified different broadband markets in different geographic areas within a country and proposed lifting regulation in those geographic areas now characterised by effective competition. The Commission supports Ofcom's proposal, which is based on detailed economic evidence, to deregulate local exchanges with four or more actual or potential providers serving areas with more than 10,000 homes and businesses. For the Commission, Ofcom's proposal represents a reasonable move towards better targeted regulation, concentrating on those geographic areas where structural competition problems persist.
"Ofcom's finding of effective competition in a substantial part of the UK broadband market shows that the more effective a national telecoms watchdog regulates, the faster can be the move to competition law, inbuilt in the EU's telecoms rules", said Viviane Reding, the EU's Telecoms Commissioner. "I therefore welcome the precedent set by Ofcom's proposal to define sub-national geographic markets. The proposal at the same time has enabled the Commission to provide clear guidance and policy principles for all national regulators in this important area. This should now be a solid basis for a coherent European regulatory approach to regional markets and give the required legal certainty to the market."
"In the more densely populated areas of the UK, consumers have the choice between different broadband suppliers which have rolled out their own infrastructure. For many of these areas ex-ante regulation is no longer warranted", said Competition Commissioner Neelie Kroes. "However, at this crucial phase of broadband development across Europe, it is also important to ensure consistency across Member States. Both over-regulation and under-regulation could stifle investment and lead to higher costs for households and businesses. Any de-regulation of sub-national markets should therefore be based on competition law principles."
The Commission's decision concerns the UK market for wholesale broadband access. Wholesale broadband access (or bitstream access) is, together with access to the local loop (local loop unbundling; LLU), a key input enabling alternative operators to enter the retail market and to offer broadband services to consumers.
On 15 November 2007, Ofcom notified its second review of the wholesale broadband access markets in the UK in the context of the so-called "Article 7"-consultation mechanism established by the EU telecoms rules (see MEMO/07/457). Ofcom is the first national telecoms regulator in the EU that has proposed to define sub-national geographic markets for wholesale broadband access in order to de-regulate the provision of wholesale broadband access in those areas where it no longer found significant market power of the incumbent operator British Telecom.
Ofcom argues that thanks to the regulation of relevant wholesale inputs (i.e., LLU and bitstream), broadband competition is developing in the UK with alternative providers increasingly investing in their own networks and building out to connect to the incumbent's local loop, thus giving rise to differing conditions of competition across the UK and suggesting that a national market no longer exists.
The EU's regulatory framework for the telecom markets and the underlying competition law principles already recognise the possibility of defining sub-national geographic markets where appreciably different conditions of competition arise. However, the criteria applied by national telecoms regulators must be robust, evidence-based and consistent across the EU. In view of the extensive market data provided by Ofcom, the Commission acknowledged that the developments of competition in parts of the UK are sufficiently established to support the definition of sub-national markets and removal of regulation in those areas where effective competition exists.
Furthermore, in its decision, the Commission sets out guidance for future cases on how sub-national markets can be defined and assessed. The Commission also asks Ofcom to substantiate its geographic market definitions in light of the guidance provided by the Commission.
The Commission underlines that, although there is a strong indication that certain geographic areas will move towards an effectively competitive outcome, it is not necessarily the case that all areas now deregulated will follow the overall competitive trend as argued by Ofcom. The Commission therefore welcomes Ofcom's commitment to carefully monitor the progress of competition in those areas where regulation will be lifted, and to conduct a further market review should competition not develop as forecasted.
In its first review of the market in 2003/2004, Ofcom found a national market (the UK excluding the Hull area) market for wholesale broadband access services on the basis that competitive conditions were relatively homogenous nationwide and BT was designated with significant market power in this national market. Kingston Communications was also designated with significant market power in the Hull area.
In the current review, Ofcom notes that competitive developments are evolving at different rates across the UK suggesting that a national market no longer exists.
Thus, Ofcom proposes to define the following markets:
Ofcom proposes to designate Kingston Communications with significant market power in the Hull area and BT with significant market power in markets 1 and 2. In market 3, Ofcom considers that there is effective competition to protect consumer interests and that, after a transition period of one year, regulatory obligations should be withdrawn from this market.
Under the EU's telecom rules, the market analysis of a national regulator needs to be checked by the Commission for its compatibility with the Single Market and competition law principles.
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