3.296 We propose to keep the criteria with which we determine the geographic market definition the same as they were in the previous market review except for one minor change to the criteria. We propose to remove the threshold for exchanges with less than 10,000 DPs – where these exchanges are forecast to have four or more POs in the future (but currently have less than four) we consider them to be in Market 3. 3.297 We consider that areas of monopoly where BT is the only operator present in an exchange have significantly different competitive conditions from other exchange areas where there are multiple operators present.
3.298 Despite some variation in the intensity of competition between those exchanges with two and three POs, we do not think those differences are currently sufficient to justify establishing separate geographic markets. Neither do we consider that the
competitive conditions in those exchanges with three POs are sufficiently similar to exchanges where there is a greater number of POs for these exchanges to be included in Market 3, where we have previously found competition to be effective. In particular, this is based on:
The scope for further significant LLU deployment being limited;
BT’s average market share across exchanges where there are two or three POs present being high; and
Only one PO other than BT having significant coverage in areas where there are two and three POs (whereas, in areas where there are four POs, a wider range of POs have significant coverage).
3.299 Therefore, we propose that the relevant geographic markets, taking account of additional LLU rollout since last review, are:
Market 1: exchanges where only BT is present (14.2% of premises);
Market 2: exchanges with 2 or 3 POs present or forecast (13.8% of premises);
Market 3: exchanges with 4 or more POs present or forecast (71.3% of premises); and
The Hull area (0.7% of premises).
3.300 This is based on assessing the relationship between the competitive dynamics within an exchange and the number of POs present in the exchange. In future, the
approach to considering market boundaries will need to take account of
developments in the market, such that the criteria for grouping exchanges may vary. These developments may include further market consolidation. We would expect that, in addition to market reviews, the effects on competition of any market
consolidation will be considered on its merits through the relevant regulatory process.
Geographic market definition and NGA
3.301 In our product market definition we have proposed that services of all speeds are in the same product market. Therefore, services provided over NGA networks must be considered in addition to those provided using LLU when we consider our geographic market definition.
3.302 Our geographic market definition uses local exchanges as the relevant geographic unit and groups these where competitive conditions are sufficiently homogenous, based on the number of POs present in the exchange area. When NGA is taken into account, this approach remains appropriate, as discussed below.
3.303 BT has indicated it plans to build its NGA networks from 800 – 1000 of its current 5500+ local exchanges. This means an end-user premise may be connected to a different local exchange for NGA than it currently is for current generation services. It is very likely that the exchanges BT uses to support its NGA deployments will be exchanges that fall in the Market 3 area (although specific rollout plans are not yet confirmed).
3.304 Where a PO invests in infrastructure deployments at the 800 – 1000 local exchanges that BT uses as the handover points for its NGA deployments, it is in the interest of
the PO to compete for as many customers connected to the NGA network as
possible to maximise the return on its investment. This includes customers that were previously connected to a different exchange via the current generation copper access network. The level of competition for all NGA customers served by any specific exchange will therefore be the same.
3.305 At local exchanges that BT uses to provide the handover point for its NGA deployments, a PO that has already deployed its own network for the purpose of using LLU will also be able to use this network to access the NGA non-physical remedy that we have proposed BT will be required to provide as a result of it having SMP in the WLA market. Again, the PO will be likely to derive the maximum benefit from its investment by using it to provide both current and next generation services. Therefore, the competitive conditions for current and next generation access are likely to be the same for a given exchange because the POs present in the exchange will have access to, and the incentive to make use of, the upstream WLA remedies provided over both technologies.
3.306 There are 76 exchanges in Market 3 where there are four POs and one of these is Virgin Media. If any of the 800 – 1000 exchanges that BT selects to provide NGA from is one of these exchanges, there may be a concern that since Virgin Media is not an LLU operator, it does not have access to the NGA non-physical remedy provided by BT. As such, customers taking NGA services that are served by these exchanges may not have a choice of four POs for the provision of their NGA service. 3.307 However, we do not consider this will lead to a significant reduction in competition.
As services provided over the current generation and next generation access networks are in the same market, the constraint provided by the POs is exchange- wide across both current generation and NGA services. Also, whilst the percentage of premises that Virgin Media can serve in the exchange area may change, it will still be able to serve a significant proportion of premises and, to the extent that BT sets a uniform price across the exchange, the presence of Virgin Media will act across the whole exchange area.
3.308 In addition, the availability of NGA services at these exchanges may make it more attractive for other POs to deploy at this exchange for both current generation and NGA services, so that the level of competition increases.