BT UK-SPN calls service

No. 23/05/2003

The Director General of Telecommunications (the Director) has conducted an investigation examining whether British Telecommunications plc (BT) has infringed the prohibition (the Chapter II prohibition) imposed by section 18 of the Competition Act 1998 (the Act) in relation to the pricing of its UK-SPN service.

The UK-SPN service is a wholesale Indirect Access product provided by BT using a network leased from the administrators of a failed telecommunications company.  The UK-SPN service supplies end-to-end calls to service providers who either do not have a telecommunications system, or do not wish to carry certain calls on their own telecommunications system.  A complaint was received from a number of competitors who alleged that the UK-SPN service was being provided by BT below cost, and that BT was funding the shortfall from profits on activities in other markets in which it appeared that BT was likely to be found to hold a dominant position. 

The Director did not reach any firm conclusions on the relevant markets and dominance in this case (given his conclusions on non-infringement). However, the Director considered that given BT's likely dominance in the relevant upstream markets, the most appropriate way to characterise the alleged abuse in this case was as a margin squeeze.

BT launched its UK-SPN service in April 2002. During the Director's investigation BT announced that the UK-SPN service would no longer be available to new customers with effect from 30 May 2003, and BT has informed the Director that the service will shortly be withdrawn from BT's portfolio.

The Director has now completed his investigation. On the basis of the information available to him, the Director has concluded that:

• on forecast volumes the UK-SPN service would have been a profitable service in aggregate and those call-types forecast to be below cost would be insignificantly so relative to price
• on actual and revised forecast volumes carried by the UK-SPN network, prices are unlikely to cover the relevant cost floor for any call-type
• however, BT's original business case was not implausible and after several months' actual data BT has taken the decision to close the business
• there is no evidence to demonstrate that the UK-SPN service had a material adverse effect on competition
• there is also insufficient evidence that BT intended to pursue an anti-competitive strategy.  The available evidence would suggest a new business that was unsuccessful in meeting forecast demand (and as a result has been withdrawn) rather than a deliberate or negligent anti-competitive strategy.

For these reasons, the Director does not consider that BT's pricing of the UK-SPN service constitutes an infringement of the Chapter II prohibition of the Act.

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