Overview of UK telecommunications regulation

Virtual cables Ever since BT was privatised in 1984, there has been a continuous policy debate over how the UK telecommunications sector should be regulated to adapt to rapidly changing technologies and markets.

The world has of course come a long way since then with mobile, internet and broadband to name but a few of the main developments. As a result, today's telecommunications regulatory framework is a rather complex myriad of provisions which may appear daunting for a person new to this area.

First off we should take a look at the key features of UK regulation governing the telecommunications sector.

The UK Communications Act 2003

UK telecommunications operator must operate within the legislative framework set by the Communications Act 2003. This Act implemented a set of EU directives from 2002 which sought to modernise and further harmonise communications regulation across the European Union.

The Office of Communications

Tasked with the practical implementation of the Communications Act, the Office of Communications (Ofcom) was created in 2003 as a converged regulator replacing the various regulators in existence until then. Today Ofcom has about 800 staff and an annual budget of approximately £130 million. Its organisational structure resembles that of a company with a CEO responsible for day-to-day leadership and a body akin to a board of directors.

General conditions of entitlement

Considering the telecommunications sector (as distinct from the broadcasting sector which Ofcom also regulates), the Communications Act abolished the need for telecommunications operators to hold a licence in order to provide telecommunications networks and services (with the exception of spectrum use which still requires a licence, e.g. mobile operators). Instead, a kind of self-certification scheme was introduced whereby operators need to ensure it complies with set of general conditions in order to be allowed to do business.

There are over 20 general conditions which detail an array of rules, including interconnection standards, number portability, deployment of telephone numbers, access to emergency services, sales and marketing standards, special services for the disabled, broadband migration codes, and so on. Ofcom's investigation unit monitors compliance and resolves complaints in relation to the general conditions.

Regulation of dominant telecommunications operators

An important part of Ofcom's work is to regulate the commercial behaviour of dominant telecommunications operators who may have a potentially harmful influence on competition and consumers. The Communications Act has borrowed well-known concepts from general competition law to allow Ofcom to achieve this objective.

Ofcom carries out market reviews of the various economic markets on a regular basis (normally every 3-4 years) to establish whether any particular operator is dominant or, in the language of the Communications Act, has significant market power (SMP).

An operator is deemed to have SMP in a particular economic market if 'either individually or jointly with others, it enjoys a position equivalent to dominance, that is to say a position of economic strength affording it the power to behave to an appreciable extent independently of competitors, customers and ultimately consumers'.

If Ofcom finds that an operator has SMP, it can impose specific SMP conditions to ensure that the SMP operator does not gain an unfair competitive advantage by virtue of its market influence.

SMP conditions may include an obligation to interconnect with other network operators, non-discrimination obligation, price controls, and so on. In fixed telecommunications, BT still has SMP in most key economic markets by virtue of being the legacy owner of the largest telecommunications network in the country.

The Strategic Telecommunications Review

In 2005, Ofcom concluded a major strategic review of the fixed telecommunications sector using its separate powers under the Enterprise Act 2002. The objective of the review was to determine whether the sector was suffering from competition problems of such a persistent nature that they could not easily be remedied using Ofcom's specific market review powers under the Communications Act.

The outcome of the strategic review was that BT offered a host of undertakings to Ofcom by which it agreed to set up a separate network access division called Openreach and also to offer its wholesale products on an equivalent basis to both external customers (Cable & Wireless, Carphone Warehouse, Thus, etc.) and its own downstream divisions. The undertakings have brought about a fundamental shift in the way in which BT does business with all its customers.

From a regulatory perspective, the undertakings are unique to the UK and are being actively studied by regulators in other European countries who experience similar competition problems arising from the presence of a large incumbent telecommunications operator.

The Competition Appeal Tribunal

Telecommunications operators are able to appeal Ofcom decisions to the Competition Appeal Tribunal who can review both the legal and economic analysis undertaken by Ofcom. The tribunal can also overturn decisions if it does not agree with Ofcom's reasoning. The appeal route to the tribunal has proven popular among telecommunications operators seeking a second view. The tribunal currently has 14 appeals against Ofcom decisions pending before it.

Government plans for future reform

Looking at the future of regulation in this area, the government announced in September 2007 the setting up of a Convergence Think Tank to assess the impact of converging communications sectors (telecommunications, broadcasting, internet etc) on future policy and regulation. The government has promised extensive consultation with industry and other stakeholders throughout 2008 before deciding on the details of any reform.

Rickard Granberg AMBCS is head of Telecoms Regulation at The Carphone Warehouse Group

March 2008