IMPLEMENTING THE AID: OFTEL CONSULTATION ON GUIDELINES BT’S PERSPECTIVE PAUL RICHARDS RAD July 8th 2002

OUTLINE OF PRESENTATION  The Scope Of BT’s Response  OFTEL’s Objectives  The Nature Of Innovation  Vertical Relationships, Pricing And Exclusionary Abuses

The Scope Of BT’s Response: (1) Main Response  Legal Context  Powers And Duties Of NRAs  The AID And Competition Law  The Economics Of Access  Access Obligations And Market Evolution  Pricing For Access And Interconnection  Application  Role Of Regulation  Feasibility Assessment For Operators

The Scope Of BT’s Response: (2) Appendices  Legal Assessment (consultant)  Comment On OFTEL’s Market Power Designation For Broadband (consultant)  Innovation And Emergence Of Next Generation Networks (BT)  Nature Of Competition In Innovative Markets And Implications For Access Regulation (consultant)

OFTEL’s Objectives: (1) Overall Framework  Long Term Benefits To Consumers (LTABE)  NRA Should Encourage Investment In UK  Access Mandated If Meets Requirements  Unclear How Tests Relate To LTABE  Not An Issue Of A ‘Wholesale’ Market  Forbearance And Costs Of Regulation  OFTEL Goes Beyond FD/AID  NRAs To Desist Where Innovation

OFTEL’s Objectives: (2) Timing  The Option Appraisal Exercise  Commission  Guidelines On Principles  Recommendation On Markets  Guidelines On Remedies?  Position Of SPs and Authorisations  Too Soon To Issue Final Guidelines

The Nature Of Innovation: (1) Historic OFTEL Position  Interconnect & Interoperability ( )  Line Externalities  Market Power  Little Innovation In PSTN World  Convergence ( )  4 market model  BSMM  Transition Rules etc  Huge Concerns Over Vertical Relationships

The Nature Of Innovation: (2) Next Generation Networks  Involvement Of Many Industries  Broadcasting  Internet  PC IT Industry  Entertainment  Telecommunications  High Degree Of Collaboration Needed  Risks Huge  Technical Standards ‘decentralised’  Currently No Clear Business Model

The Nature Of Innovation: (3) Emerging Markets  Several Value Chains Viable  Competition Is ‘For The Market’  Pricing Is Critical:  Bundling  Discrimination By Customers/Over Time  Monopoly Quasi Rents Needed  Market Power Is Temporary If At All  Technologies Will Be Disruptive  Services May Be Short-Lived

Vertical Relationships, Pricing And Exclusionary Abuses: (1) Problem Areas  Assessment Of Market Power  Retail Minus Formula  Gives Third Parties Huge Options Benefits  Margin Squeeze  Not Separate Abuse Under Competition Law  Very Difficult To Apply Where Innovation  Major Technical Problems Common Costs etc  Vertical Relationships  Exclusivity/FMA Not Necessarily Abusive

Vertical Relationships, Pricing And Exclusionary Abuses: (2) BT Position  Parity Of Treatment Third Parties With Own Downstream Divisions  Fully In Alignment With Competition Law  Harmonised With Other EU MS  OFTEL To Re-Think Its Positions  Where Will Innovation Occur?  How Should Exclusionary Abuses Be Treated?  Focused Role For Ex-Ante Regulation  Handling Of SoRs/Disputes