Telefonica O2 UK Ltd & Ors v British Telecommunications Plc & Anor

When Ofcom resolves a network-access dispute, it acts as a regulator pursuing the objectives of the Common Regulatory Framework, not merely as a commercial arbitrator enforcing contractual rights. Existing contractual rights are relevant but have no overriding significance, and the approach does not depend on whether a variation arose under one contractual mechanism or another.

The party proposing a change must justify it as fair and reasonable. Ofcom must balance consumer welfare, competition, innovation, commercial certainty and other relevant considerations, including risks and uncertainty. Promotion of competition is not an end in itself. On appeal, the Competition Appeal Tribunal must respect Ofcom’s policy judgment unless there is an error of law or the factual basis has materially failed.

Ofcom determined disputes under the Communications Act 2003 between British Telecommunications plc and four mobile network operators concerning termination charges for calls to non-geographic numbers in the 080, 0845 and 087 ranges. Ofcom rejected three charging notices as not fair and reasonable.

The Competition Appeal Tribunal allowed BT’s appeals in [2011] CAT 24 and [2011] CAT 26, holding that the notices were contractually authorised and should stand. The mobile operators appealed. The central issues were the effect of BT’s contractual rights, the significance of the absence of ex ante price regulation, the relevance of competition, the burden applicable to proposed pricing changes, and the proper appellate approach to Ofcom’s regulatory judgment.

Lloyd LJ gave the leading judgment. Etherton LJ agreed and added brief reasons; Elias LJ agreed. The appeals were allowed.

1. Regulatory character of dispute resolution. Ofcom’s jurisdiction under section 185 of the Communications Act 2003 is a regulatory function required by the Common Regulatory Framework. It is intended to resolve commercial deadlock while securing interconnection, interoperability and the relevant regulatory objectives. Ofcom is not confined to deciding the parties’ contractual rights.
2. Contractual rights. The contractual position, including BT’s right under paragraph 12 of the Standard Interconnect Agreement to impose a pricing change, is relevant but cannot determine the outcome. There is no principled distinction in the regulatory approach between changes under paragraphs 12 and 13. Ofcom may uphold, modify or override contractual rights where appropriate.
3. Regulatory absence and competition. The absence of ex ante regulation is not an indicator that a price should not be regulated through dispute resolution. Dispute resolution is itself a form of regulation. Promotion of competition is not an independent objective detached from consumer benefit. Innovation likewise requires assessment against the wider regulatory objectives.
4. Applicable test. Following the guidance in T-Mobile (UK) Ltd v Office of Communications [2008] CAT 12, the party proposing a variation must justify it as fair and reasonable. The burden is not reversed merely because the proposal is contractually permitted. The proponent need not establish conclusive consumer benefit, but opponents need not prove clearly and distinctly that the change would materially disadvantage consumers.
5. Balancing and appeal. Ofcom was entitled to assess the likely advantages and disadvantages, their respective probabilities and seriousness, and to place greater weight on the identified risk of consumer harm. The Tribunal was not entitled to substitute its own balancing of regulatory considerations without identifying an error of law or a material failure in the factual basis.

Ofcom had acted within its powers and duties in rejecting the three NCCNs. The NCCNs were directed not to have effect and to be treated as never having had effect. The consequential appeal and BT’s respondent’s notice therefore did not require determination.

1. Court of Appeal (Civil Division): allowed the mobile operators’ appeals and directed that BT’s three NCCNs should not have effect and should be treated as never having had effect.
2. Competition Appeal Tribunal: allowed BT’s appeals in [2011] CAT 24 and [2011] CAT 26, holding that the charging notices were fair and reasonable and directing Ofcom to allow them to stand.
3. Ofcom: determined the disputes on 5 February 2010 and 10 August 2010, rejecting BT’s proposed variations.