Influencia de los sustituyentes alquílicos sobre el grado de π

Summary

1. Our position on Ofcom‟s assessment of SMP for the wholesale AISBO markets in the UK excluding the Hull area can be summarised as follows:

a. BT does not agree that we have SMP for AISBO in the WECLA area.

b. BT‟s volumes have been overstated in this market and OCPs‟ volumes have been understated, both of which lead to an artificially high market share for BT.

c. Ofcom underestimates the impacts of alternative technologies, such as EFM.

d. The combination of extensive competitive network reach, low BT market share and usage of alternative technologies strongly indicates that Ofcom should find no SMP for AISBO in the WECLA.

e. We believe that within the WECLA, the competitive position for 1Gbit/s AISBO services is very different (as set out above in our answer to Ofcom‟s Q2).

f. We do not have SMP in connectivity to multi-tenant carrier-neutral data centres anywhere at any bandwidth with any interface and these services should not form part of any other SMP assessment either.

Main points on our position on Ofcom’s assessment of SMP for the wholesale AISBO markets in the UK excluding the Hull area

2. As set out in our response to question 3, BT considers that there are certain flaws in Ofcom‟s geographic assessment of the wholesale AISBO markets, which require Ofcom to reconsider and redefine the definition of the WECLA. Once the boundary has been correctly identified, Ofcom then needs to re-evaluate its assessment of SMP in both the UK AISBO market excluding the WECLA and Hull, and the AISBO WECLA market. This re-assessment also needs to address a number of further inaccuracies in the market share assessment methodology – as described in more detail in Section 4.5. These include the inappropriate identification of notional BT network AISBO circuit ends within the WECLA, missing volumes of self-supplied OCP circuits where they are used for purposes other than retail leased lines, missing EFM and SDSL OCP volumes, and self-built services using dark fibre inputs.

3. Correcting these errors should lead Ofcom to conclude that BT does not have SMP in the wholesale AISBO market in the WECLA as BT‟s market share would be below 40%, given the (correct) inclusion of further competitive postal sectors in the definition of the WECLA. Following the Commission‟s decision-making practice, market shares below 40% are unlikely to lead to concerns over dominance and so a finding of SMP would be unjustified.

4. Whilst we consider that this re-assessment needs to be undertaken, the remainder of the response to this question is on the basis of the existing definition of the WECLA proposed by Ofcom.

5. Overall, whilst we do not disagree with the finding of SMP in the AISBO market in the UK excluding the Hull area and WECLA (and with the further extension of WECLA to logically connected metro areas throughout the UK as discussed in Section 4.3), we do not support the finding of SMP in the AISBO market in WECLA. Furthermore, BT considers that the competitive

48 position within the WECLA for 1Gbit/s AISBO services is different to lower bandwidth services, such that Ofcom should consider whether the conditions of competition are different for 1Gbit/s services.

6. We estimate our share of 1Gbit/s services in the London area (i.e. a broader geography than Ofcom‟s proposed WECLA) is much lower than 40% as set out in our response to Q2 above) and so Ofcom should find that BT does not have market power in the provision of this service. Even if Ofcom were to find SMP in the AISBO market in the WECLA in the final BCMR statement, it should take into account the different nature of 1Gbit/s services, as compared to lower bandwidth services in the WECLA. 1Gbit/s services have a comparatively high retail value, so that

competitive constraints for these services are likely to be higher. Consequently, Ofcom should consider not regulating 1Gbit/s services, or at the very least consider imposing less stringent remedies, to avoid distorting the existing competitive market dynamics. This is explained further in our response to Question 16.

Wholesale market for low bandwidth AISBO in the UK excluding the Hull area and the WECLA

7. Overall, BT does not disagree with Ofcom‟s finding of SMP in this market subject to the comments made above. However, we make the following observations.

8. In relation to market shares, BT considers that Ofcom has made various errors in its assessment. As these are more critical in relation to the AISBO market in the WECLA, these points are set out in full in relation to that market (below) but they apply equally to this market. In addition, Ofcom notes [paragraph 7.215] (in relation to the AISBO market in the WECLA) and explains [Annex 8] that circuits used to connect nodes to each other do not count towards a CP‟s market share. It goes on to explain [paragraph 7.216] how BT had to resubmit its circuit dataset with a revised classification for the end-types. This leads to a reduction in BT‟s market share in the WECLA. It is not clear why Ofcom has not made this same reassessment of BT‟s market share in relation to the AISBO market excluding the Hull area and the WECLA. This reassessment should lead to a reduction in our market share in this market.

9. BT disagrees with Ofcom‟s assertion [paragraph 7.184] that BT supplying 50% more new services than Virgin Media (BT‟s biggest competitor in this market) suggests we will continue to have a market share well above 50%. This assertion is unsubstantiated and unreliable, given the fact that this market is rapidly expanding.

10. In relation to control of infrastructure, we do not disagree that we gain some very limited competitive advantage from our existing network but this is very limited and insufficient to be attributed to supporting a finding of SMP. Further, Ofcom needs to acknowledge that 1Gbit/s services have a higher retail value than lower bandwidth Ethernet services. Consequently, Ofcom should apply the same analysis it uses in relation to high value, high bandwidth services to these services. This means that, in the case of 1Gbit/s services, control of BT‟s network does not give it a significant competitive advantage, as the retail revenues that can be earned mean that OCPs are more likely to be willing to make the necessary investments to provide new customers with these services. This reduces the barriers to entry in this market and also reduces the benefits BT gets from economies of scale and scope. This is implicitly acknowledged by Ofcom in paragraph 7.226 where it says OCPs will be less competitive in relation to lower value sites.

11. In relation to barriers to entry, Ofcom has highlighted some switching costs which it considers relevant but has not explained what data it relied on to reach this conclusion. It is not sufficient to

49 identify hypothetical switching costs, without backing that up with some empirical evidence, such as interviews with CPs.

Wholesale market for low bandwidth AISBO in the WECLA

12. Overall, BT does not agree with Ofcom‟s assessment of SMP in this market. BT considers that it does not have SMP for the reasons set out below and in more detail in Sections 4.4 and 4.5.

Market shares and trends

13. As set out in our response to question 5, Ofcom has generally placed too much emphasis on market shares. This is particularly relevant in relation to this market, as BT‟s market shares are just above the 40% level, below which the Commission is unlikely to have concerns over dominance.

14. Ofcom has estimated that BT has a market share of 45-50% in this market. Ofcom has

overestimated BT‟s share for a number of reasons. These are set out in greater detail in sections 4.4 and 4.5 of this response, but in summary:

a. Ofcom has overstated BT‟s market volumes, for example by identifying notional “network ends” for terminating segments imputed as existing for end to end circuits crossing TAN boundaries. This means that Ofcom counts additional BT volumes for AISBO within the WECLA, even where a circuit is entirely located outside of the WECLA. This systematically and inappropriately increases Ofcom‟s count of BT volumes within the WECLA.

b. Ofcom has also understated OCPs‟ market share. For example, Ofcom states [paragraph A8.14] that it has been unable to gain information from OCPs on “self-supplied” circuits and has therefore deduced the presence of such circuits by imputing a wholesale component from the OCPs‟ reported retail circuit sales. However, circuits in the wholesale AISBO market are generally used for a range of other downstream markets, not just retail private circuits. So, for example, Ofcom‟s method of counting OCP wholesale self-supplied AISBO circuits will miss out any OCP volumes used, say, for retail VPNs. This will significantly understate the OCP share and therefore overstate BT‟s.

c. Ofcom has failed to take account of the volume of services using self-built networks, including those built using component inputs from third parties, such as dark fibre. This is explained in more detail in our response to the assessment of SMP in the MISBO market (question 17), where it has more of an impact and Annex 2. However, it will still have a very significant impact in relation to 1Gbit/s services within the WECLA and so should be fully taken into account in relation to AISBO. The report from Analysys Mason on high bandwidth services (submitted with this response) focuses mainly on the MISBO range of services, but Analysys Mason state their view that: “We would also expect the use of dark fibre as the basis of self build networks to have an impact on the number of 1Gbit/s circuits in the AISBO market both in WECLA and outside. These circuits are not counted under Ofcom‟s methodology”.

d. Ofcom appears to have excluded OCP-provided circuits using Ethernet in the First Mile (EFM) and SDSL-based services – which will also have had the effect of inflating Ofcom‟s estimate of BT‟s market share. On the latter item, Ofcom appears to have deduced that SDSL-based services would be in the TISBO market rather than the AISBO market. We believe this is incorrect. The service interface for SDSL-based service provided by other CPs such as Easynet is unlikely to be a TDM G703 or X21 interface and would therefore meet the

50 definition of AISBO rather than TISBO. Consequently, Ofcom should count such circuits when assessing market shares in the AISBO market.

e. Also as explained in Section 4.7 of this response, BT believes that circuits of all bandwidths connecting to carrier neutral multi-tenancy data centres are, by definition, competitive and so should be excluded when assessing market shares.

15. Once Ofcom has corrected for the above errors, we believe that Ofcom would find our market share to be below 40%, which would be a strong indicator of no SMP. Even if BT‟s market share remains above 40%, Ofcom should not place much emphasis on market share (as explained more fully in our response to question 5) and instead should consider this in the round, alongside other factors, such as a rapidly expanding market and lower barriers to entry. An over-reliance by Ofcom on market shares has led it to incorrectly conclude that BT has SMP in this market.

Profitability

16. BT supports Ofcom‟s view that there is no evidence of BT earning an excessive ROCE in this market. However, as noted in our response to question 5 and at Section 4.4, BT considers that low levels of profitability should not be disregarded when assessing SMP in a market.

Control of infrastructure not easily duplicated

17. BT agrees with Ofcom‟s view that any advantage which BT derives from the extent of its network in the WECLA is likely to be smaller than in other areas [paragraph 7.255]. However, we do not agree that the benefit we derive is sufficient to indicate SMP. This is particularly the case in relation to 1Gbit/s services.

18. Ofcom‟s assessment of this criterion in relation to AISBO differs from its assessment of the same criterion in relation to the medium and high bandwidth TISBO markets in the WECLA. There (in paragraph 7.111), Ofcom considers that the amount of alternative network infrastructure in the WECLA is significantly greater than in other parts of the UK. Ofcom does not make a similar statement in relation to low bandwidth AISBO services in the WECLA, although the same must be true. Ofcom also states in the same paragraph that 92% of business sites are within 200m of at least two CP network flexibility points, in addition to BT (this figure increases to 95% being with 200m of at least one OCP network [paragraph 7.116]). This leads Ofcom to conclude that to a sufficient degree, OCPs have duplicated BT‟s access network infrastructure. Ofcom has not carried out the same level of assessment in relation to the low bandwidth AISBO market in the WECLA.

19. Given that the same network is used to provide TISBO and AISBO services, it seems illogical and inconsistent for Ofcom to reach different conclusions on this point in different markets. This suggests that Ofcom‟s assessment of control of infrastructure varies according to the level of market share that it has found in a particular market i.e. where market shares are low, Ofcom considers that control of a network does not give BT a particular advantage but when market shares are high, then it does.

20. BT also disagrees with the conclusion Ofcom reaches in paragraph 7.226 that OCPs will

generally require ductwork to reach new customer sites. Ofcom bases its conclusion partly on the fact that the data on ECCs shows that OCPs require network extensions more often than BT [paragraph 7.27]. However, this directly contradicts paragraph 11.114 on ECCs incurred for new EAD orders, which says “both the incidence and average value of ECCs incurred by BT are

51 slightly higher than for CPs”. This suggests that in fact BT does not benefit significantly from its network and points to a finding of no SMP.

Economies of scale and scope

21. BT agrees that scale is unlikely to be a significant factor affecting market power, as most services are provided point-to-point and so economies of scale arise only to the extent that multiple services are provided to the same site. The cost advantages arising from owning a widespread network are therefore smaller than they otherwise would be. However, Ofcom has assessed this in qualitative terms only. In particular, it notes in paragraph 7.227 that OCPs sell relatively more to each site served, which suggests BT is unlikely to benefit from economies of scale.

Barriers to entry and expansion

22. BT agrees with Ofcom‟s finding that barriers to entry are unlikely to have a material impact on this market. However, BT does not necessarily agree with Ofcom‟s conclusions on barriers to

expansion. For the medium and high bandwidth TISBO markets in the WECLA, Ofcom has cited the percentage of businesses with an OCP network within 200m in the WECLA. It is not clear why Ofcom has not pointed out the same statistic in relation to the low bandwidth AISBO market in the WECLA. This is an omission on the part of Ofcom that suggests an unwillingness to genuinely assess whether barriers to expansion truly exist in this market.

23. Given the high density of customers in this geographic market, any barriers to entry and expansion that do exist are unlikely to give a BT a material advantage in this market. Low

bandwidth AISBO services, as with all other services in the WECLA, are constrained by the threat of market entry and expansion, given the higher density of businesses with multiple tenants and more extensive CP networks. OCPs‟ existing networks are sufficiently ubiquitous such that any advantage derived by BT is relatively small.

Countervailing buyer power

24. BT does not agree with Ofcom‟s focus on the size of customer as the determining factor for this criterion, i.e. a customer must be of sufficient size to be able to exert countervailing buyer power [7.236]. As noted in our response to question 5, there are other relevant factors, such as a customer‟s ability to self-supply and its knowledge of other sources of self-supply. Several of BT‟s customers (for example the MNOs) meet these conditions and so should be considered as exerting countervailing buyer power. However, Ofcom has not adequately considered this in its discussion of this criterion and has only briefly touched on the relevance of alternative suppliers as another key factor here (in its passing reference to further entry into the market, in paragraph 7.236). A full assessment of this criterion would show that there are CPs who are able to exert countervailing buyer power on BT, either by threatening to self-supply or to go to alternative suppliers, to the extent that this indicates BT does not SMP in this market.

Prospects for competition

25. Ofcom acknowledges in paragraph 7.240 that the prospects for competition are “strong” today due to the expectation of strong demand growth and significant OCP network infrastructure. However, in paragraph 7.238, Ofcom concludes that although the prospects for competition are “strong”, they will not become effective over the course of the review period. This appears contradictory.

52 26. Furthermore, Ofcom appears to base this conclusion on the fact that these factors were also

present in the 2008 BCMR and yet BT has maintained its market share since that review. However, Ofcom has not acknowledged the important difference between the 2008 review and the current review, namely that in the 2008 review, that was only one national market. Ofcom has failed to take account of the specificities of the WECLA in its analysis here (as Ofcom has found this area to be appreciably different to the rest of the country) and instead appears to have taken a conservative approach, to avoid a situation where it considers there are good prospects for competition but these fail to materialise. This is the wrong way to approach the assessment of SMP. If there are factors pointing to increasing competition over the period of the review (which Ofcom acknowledge are “strong” here), then it should reach the conclusion that there is not SMP in this market.

Other points on Ofcom’s assessment of SMP for the wholesale AISBO markets in the UK