Oftel Issue an Official 'Case Conclusion' document to C9s SP24 Complaint

Case closure summary

Case number: CW/00382/01/01

Case title Alleged anti competitive minimum qualifying requirements for Surfport24

Case opened 23 January 2001

Case closed 1 March 2001

Complainant Cloud Nine Communications Ltd

Target of Complaint BT

Relevant instrument

Condition 57 of BT's licence, which prohibits undue preference and undue discrimination

Issue

BT has introduced a new unmetered wholesale Internet access product for Internet Service Providers ("ISPs") and Other Licensed Operators ("OLOs"). The product, called SurfPort24, combines FRIACO (Flat Rate Internet Access Call Origination) with BT dial ports delivered to the OLO's or ISP's host site, to provide end-to-end unmetered Internet access.

The service is sold at a flat port rental basis including the call access and termination, ie with no additional usage based charges, and provides unlimited use 24 hours a day. There is no direct link to the Internet, only termination on the host site - onward transmission to the Internet is the responsibility of the ISP/OLO.

The minimum order size is 1500 ports, compared with the previous minimum order limit of 100 for SurfPort, which is an entirely different, call termination only product.

Cloud Nine Communications Ltd is an ISP which subscribes to SurfPort, currently having 200 ports. It complained to Oftel, alleging that the minimum order limit of 1500 ports for SurfPort24 is anti competitive, in that it prevents small to medium ISPs from subscribing to this product.

Cloud Nine alleged that the costs associated with SurfPort24 are substantially lower, enabling the larger ISPs to grow at the expense of small to medium ISPs, who they said do not have access to the product. The complainant expressed the view that at the time of their complaint, OLOs were unable to compete with BT's offering, and that it would take some time after the FRIACO Determination (published by Oftel on 15 February 2001 - see http://www.oftel.gov.uk/competition/fria0201.htm) for them to be able to set up competing products. In turn, it said, this gave BT a first mover advantage.

Oftel's findings

In response to the allegations, BT informed Oftel that the network infrastructure for 100 ports is capable of handling far larger volumes of traffic than 100 ports are capable of generating (2MB maximum throughput versus 34MB capacity). The minimum requirement of 100 ports for SurfPort was set on the expectation that ISPs would grow and their orders would increase. BT would then be able adequately to recoup its costs and make a margin on the infrastructure on which its services are based. This has not happened, so that BT has had to impose a higher minimum requirement for this latest product.

The level of 1500 ports has, BT said, been set at the point at which the customer specific equipment which requires to be installed starts to be economically utilised and provides an adequate return on the capital employed to achieve the delivery.

In addition, BT developed the original SurfPort pricing matrix on the assumption that the average network cost of delivery was relatively independent of volume. Subsequent experience of the cost of deployment of low volume (100 port) orders revealed that the costs were far higher than anticipated, with disproportionately higher operational and support costs too.

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