Talktalk Telecom Group Plc v Office of Communications & Anor

For the purpose of section 86(1)(b) of the Communications Act 2003, a regulator must assess objectively whether the market underlying an earlier market power determination has materially changed in a way capable of affecting a later price-control condition. A forward-looking forecast must be taken into account. Developments which fall within the scope of an accurate forecast do not, merely because they have occurred, constitute material change requiring a fresh review. The appeal was dismissed by a majority.

Ofcom made a market power determination for wholesale broadband access markets in December 2010. It defined Market 1 by reference to exchanges where BT was the only principal operator present or forecast to be present, counting only firm and committed deployment plans for specific exchanges. Ofcom deferred the detailed charge control, which it imposed in July 2011 after TalkTalk had identified additional exchanges for local-loop unbundling and had begun deployment.

TalkTalk appealed to the Competition Appeal Tribunal, contending that those developments amounted to a material change under section 86(1)(b) of the Communications Act 2003. The Tribunal dismissed the appeal but criticised and reformulated Ofcom’s market definition: [2012] CAT 1. The central issue before the Court of Appeal was whether Ofcom was entitled to conclude that there had been no material change.

By a majority, the appeal was dismissed. Sir Timothy Lloyd gave the leading majority reasoning, with which Lord Justice McFarlane agreed. Sir Bernard Rix would have allowed the appeal in principle.

1. Statutory test. Section 86(1)(b) of the Communications Act 2003 permits a later SMP services condition to be imposed by reference to an earlier market power determination only if Ofcom is satisfied that there has been no material change in the relevant market. The question is one of objective assessment and judgment, not an unfettered discretion. The appeal to the Tribunal is on the merits under sections 192(1)(b) and 195(2).
2. Forward-looking assessment. A market review must assess likely competitive developments over the review period. When deciding whether a later development is material, the court must compare the later circumstances with the earlier determination and the forecasts and analysis on which it was based. A development which falls within the scope of an accurate earlier forecast does not, merely because it has occurred, amount to material change.
3. Application. Ofcom’s original definition of Market 1 was not altered in the later charge control determination. The distinction between firm, committed plans for identified exchanges and uncommitted, unidentified plans remained operative. TalkTalk’s deployment in 17 relevant exchanges by July 2011 and 92 by September 2011 was within the range contemplated by Ofcom’s forward-looking analysis. The forecast that BT would remain the predominant provider, with a market share of at least 70 to 80 per cent in affected exchanges, was not materially falsified.
4. Tribunal’s error. The Tribunal erred in treating paragraph 1.19 of Ofcom’s market power determination as obviously wrong and in devising a different definition of Market 1. That error did not establish that Ofcom itself had erred on the material-change issue.
5. Disposition. Section 86(1)(b) was satisfied, and Ofcom could impose the charge control without a further market power determination. The appeal was dismissed.

• Court of Appeal (Civil Division) — The appeal was dismissed by a majority. [2013] EWCA Civ 1318.
• Competition Appeal Tribunal — TalkTalk’s appeal against Ofcom’s 20 July 2011 charge control determination was dismissed. [2012] CAT 1.
• Competition Appeal Tribunal — Permission to appeal was refused. [2012] CAT 8.