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Ofcom seeks more data on BT's wholesale broadband costs

BT customers and competitors may get more financial information about the UK's largest communications provider's wholesale broadband activities following proposed changes to the regulatory financial information it must provide.

In a consultation paper published on Wednesday, communications regulator Ofcom said it proposed to impose new accounting obligations on BT following its recent wholesale broadband access (WBA) market review. The information will then become accessible to customers and competitors such as ISPs.

Ofcom said it needed the information to monitor and enforce various obligations placed on dominant providers in markets where they have what the watchdog defines as "significant market power".

Ofcom said BT had significant market power in Markets 1 and 2 (see map, below). Market 1 consists of almost all of rural Britain, while Market 2 consists of rural areas and villages: BT has 98.5% of communications in Market 1 and 69% in Market 2. Kcom has significant market power in the Hull area, but Ofcom plans to leave its reporting obligations unchanged.

BT would now report relevant market information, including revenues, fully allocated costs, and incremental costs in Markets 1 and 2, Ofcom said. "The geographic aspect of cost attribution will also need to be described by BT," it added.

Ofcom would also "enhance" the form and content of the wholesale broadband access statement to include upstream Openreach services on an "equivalence of input" (EOI) basis. EOI is the fixed-price terms and conditions at which a BT operation like Openreach provides a product or service to any other network operator, including other BT divisions, such as BT Wholesale. [See below for Ofcom's formal definition of EOI].

"The purpose of reporting upstream services provided by Openreach is to be consistent with the charge control formula which allows these EOI services to be passed through in the relevant WBA charges," it said.

Ofcom said it saw merit in BT proposals to present wholesale broadband access market profit-and-loss information on an EOI basis. This was "less onerous" than the format for other regulated markets, and would "raise questions" about how the EOI adjustment was calculated and how to reconcile the regulatory accounts with BT's annual report. "We therefore particularly welcome BT's and stakeholders' comments on this proposal," Ofcom said.

Ofcom also made changes in other niche markets in which BT operates.

It said BT no longer had significant market power in the market for local tandem conveyance and transit, and would therefore remove BT's financial reporting obligations from 31 March 2011. Ofcom also removed the cost-accounting obligations for the single transit market, but maintained them for accounting separation.

Ofcom said it would tighten BT's reporting of costs for number translation and for bad debts on premium rate numbers. "We have identified that there is insufficient transparency and reporting of these services in the call origination market," it said.

The regulator said BT had pointed out that it earned less than £5m from the combined sales of the three external BES [backhaul extension services - high speed point-to-point data circuits] connection services for the 100Mbps, 1000Mbps and other bandwidth services.

"In 2010-11 we propose to amalgamate the reporting of some of these low-revenue services. This is to ensure the regulatory financial statement focuses on the main regulated services produced by BT and these are not obscured by the reporting of many small services. This will ensure that the presentation of this market is consistent with our approach to reporting in other markets," Ofcom said.

Comments on the consultation should reach Ofcom before 31 March.


Ofcom's definition of Equivalence of Input (EOI)

EOI is the concept established by BT's regulatory undertakings in which BT provides, in respect of a particular product or service, the same product or service to all communications providers, including BT, on the same timescales, terms and conditions (including price and service levels) by means of the same systems and processes, and includes the provision to all communications providers (including BT) of the same commercial information about such products, services, systems and processes.


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