Judgment of the Tribunal in relation to three appeals from a determination of the Office of Communications (“Ofcom”) dated 20 December 2012 dealing with disputes between a number of communications providers (“CPs”) in relation to Ethernet services (the “Determination”). Appeals were brought by British Telecommunications PLC (“BT”), by British Sky Broadcasting Limited and TalkTalk Telecom Group plc jointly (“Sky/TalkTalk”) and by Virgin Media Limited, Cable & Wireless Worldwide plc and Verizon UK Limited jointly (referred to in the proceedings as the “Altnets”). In the Determination, Ofcom considered whether BT had complied with Condition HH3.1 of its licence (a significant market power condition imposed on BT, requiring that certain charges be cost-oriented), concluding that BT had overcharged other CPs for certain Ethernet services in certain years.
The three distinct appeals introduced a number of grounds of appeal. By way of summary:
1) BT appealed on six grounds, arguing that: Ofcom misinterpreted and misapplied Condition HH3.1 and, had it applied the condition correctly, the overcharge found would have been considerably lower (Grounds 1 and 2); Ofcom’s approach violated the principles of legal certainty (Ground 3); a number of adjustments should be made to BT’s regulatory financial statements (“RFS”) that would reduce the amount of the overcharge (Ground 4); Ofcom has no power to order repayment of sums ‘paid without dispute’ by the other CPs, albeit in breach of a cost orientation obligation (Ground 5); and, in the alternative to Ground 5, Ofcom incorrectly exercised its discretion by ordering full repayment (Ground 6).
2) Sky/TalkTalk appealed on three grounds: Ofcom was wrong to assess compliance with Condition HH3.1 on the basis of only the distributed stand alone cost (“DSAC”) measure and, had Ofcom applied the correct cost test, it would have found significantly higher levels of overcharging (Ground 1); Ofcom should have made a regulatory asset value (“RAV”) adjustment to BT’s RFS, which would also have increased the overcharge figure (Ground 2); and BT was wrong not to order the payment of interest on the sums to be repaid to BT (Ground 4). Sky TalkTalk abandoned a further ground of appeal (Ground 3) following service of Ofcom’s defence.
3) The Altnets appealed on a single ground, arguing that Ofcom was wrong not to order the payment of interest on the sums to be repaid by BT.
For the reasons set out in the judgment, the Tribunal:
- allowed, in part, Ground 4 of BT’s appeal insofar as it concerned the adjustment to BT’s rental costs in respect of the exclusion of excess construction costs;
- allowed Sky/TalkTalk and the Altnet’s appeals as regards the payment of interest.
In all other respects, the Tribunal dismissed the appeals of BT and Sky/TalkTalk, and invited the parties to make written submissions as to the appropriate directions that the Tribunal should make in the light of the judgment.
