It is a logical quirk of the European telecoms regulatory system that the provision of call termination is a regulated activity for all Communications Providers – however small. This quirk comes about because rather than just regulating the big ugly beasts of the telecoms landscape, the European system regulates on the logically elegant basis of a market by market analysis. That analysis means that vertically integrated ex-incumbents can operate free of regulation in some product markets whilst new entrants are subject to significant regulation in other product markets – such as call termination.
The analysis runs like this: every Communications Provider has 100% market share in the market for calls terminating on its network. As a result every Communications Provider has ‘Significant Market Power’ or ‘SMP’ (the regulatory equivalent of dominance) in such market and the each national regulator is required to impose appropriate remedies to address such market power. Luckily, at this stage some common sense is applied to the process and the national regulator has discretion to impose remedies that fall short of full set of cost-orientation requirements often imposed as remedies to SMP.
In the UK fixed call termination market, Ofcom followed the analysis above, then following consultation has today decided (in effect) that fixed call termination rates (‘FTR’) no higher than a rate benchmarked to BT’s (cost-orientated) call termination rates is presumed to be fair and reasonable, and that any higher rates need to be justified against a three stage test. This approach marks a shift from the prior arrangements whereby Communications Providers were able to set ‘reciprocal’ call termination rates based on their (network specific) average call termination costs with BT. The new proposal is neutral of a Communications Provider’s network technology, scale or topology.
In order to justify rates higher than the benchmark rate (currently benchmarked against BT’s local exchange termination rate), a Communications Provider would need to establish that:
- charging a FTR equal to the Benchmark FTR would deny the CP recovery of its actual costs of providing geographic call termination; and
- its actual costs of providing fixed geographic call termination are efficiently incurred; and
- charging a higher FTR than the Benchmark FTR would be offset by demonstrable consumer benefit.
One interesting issue is how this will in practice impact on the migration to all IP networks (or NGNs). Ofcom discuss this issue is some detail and feel that these proposals will at least not encourage inappropriate migration paths, although they acknowledge the difficulty of predicting the future. I suspect this will not be the last word on that topic.