Summary

Facts

This dispute relates to the proposed charges payable by BT for the termination of fixed geographic calls on Telewest's network.

In August 2005, BT issued an Operator Charge Change Notice (“OCCN”) proposing a new reciprocity agreement for geographical call termination. The proposals contained in the OCCN were rejected by Telewest. Subsequent proposals were put forward by Telewest which were rejected by BT. BT and Telewest referred the dispute to Ofcom.

Decision

1. Should Telewest provide Network Access to BT on the terms set out in the Telewest Proposal, such provision would not be regarded as being on fair and reasonable terms, conditions and charges under SMP Condition BC1.

2. Should Telewest provide Network Access to BT on the terms set out in the OCCN, such provision would be regarded as being on fair and reasonable terms, conditions and charges under SMP Condition BC1.

Reasoning

The relevant market is the market for fixed geographic call termination on Telewest’s network. Telewest has been designated as having SMP in the market for fixed geographic call termination on its own network, and is required under SMP condition BC1 to provide fixed geographic call termination services on fair and reasonable terms, conditions and charges.

In determining whether or not the charges set out in the OCCN and those set out in the Telewest Proposal are fair and reasonable, Ofcom considers it is appropriate to have regard to the six principles of cost recovery:
• Effective competition: the mechanism for cost recovery should not undermine or weaken the pressure for effective competition;
• Reciprocity: where services are provided reciprocally, charges should also be reciprocal;
• Cost minimization: the mechanism for cost recovery should ensure that there are strong incentives to minimize costs;
• Cost causation: the cost should be recovered from those whose actions cause the costs to be incurred at the margin;
• Practicability: the mechanism for cost recovery needs to be practicable and relatively easy to implement;
• Distribution of benefits: the costs should be recovered from the beneficiaries especially where there are externalities.