British Telecommunications plc v Office Of Communications (OFCOM) & Ors

A national regulatory authority resolving a dispute about an SMP condition may remedy historic overcharging, including by ordering repayment for periods before notification of the dispute. That power is distinct from the prospective imposition or modification of regulatory conditions. The power to adjust an overpayment includes interest reflecting the time value of money. Contractual terms governing interest do not, without clear language, restrict the regulator’s statutory powers. A cost-orientation condition requiring an appropriate mark-up for common costs may permit DSAC rather than FAC where the regulatory purpose includes developing competition in a potentially competitive wholesale market. Appellate courts should not substitute their view for specialist economic assessments absent an error of law.

Ofcom determined that BT had breached Condition HH3.1, an SMP cost-orientation obligation imposed in the AISBO market, by using an excessively generous methodology. It ordered repayments to communications providers for historic overcharging but awarded no interest. The Competition Appeal Tribunal largely upheld Ofcom’s determination, but directed that interest be paid and rejected BT’s legal and jurisdictional challenges. It also upheld the use of DSAC rather than FAC. BT appealed on prospective regulation, legal certainty and interest. TalkTalk appealed on the DSAC issue. The central questions were whether Ofcom could remedy historic breaches and award interest, whether the contractual interest clause controlled, and whether Condition HH3.1 required FAC rather than DSAC.

All appeals were dismissed.

1. The court distinguished the prospective power to impose or modify conditions under the Communications Act 2003 from the power to remedy or penalise past breaches. Under the CRF, the regulator had to be able to take effective, appropriate and proportionate action against historic breaches of SMP obligations. The absence of a specified limitation period did not remove that power, although proportionality, effectiveness and legitimate expectation could control stale claims.
2. Section 190(2)(d) of the Communications Act 2003 used language wide enough to include interest in an adjustment of an overpayment. Interest represented part of the economic value of money wrongly retained. The power was supported, and in the appropriate case required, by the objectives of the Framework and Access Directives.
3. Clause 12.3 governed contractual interest. Its exclusion for retrospective recalculation or adjustment did not fetter Ofcom’s statutory jurisdiction or determine whether Ofcom should award interest. The question remained one for Ofcom in accordance with its regulatory duties. The award of interest was appropriate because it strengthened the incentive to comply with Condition HH3.1.
4. Condition HH3.1 was sufficiently clear. Its reference to each and every Network Access charge required separate connection and rental charges to be cost orientated. Other regulatory material could not displace the proper construction of the condition. BT’s legal certainty challenge therefore failed.
5. The Competition Appeal Tribunal was confined by section 195(2) of the Communications Act 2003 to the pleaded grounds of appeal. A point raised squarely before the Tribunal and treated in substance as falling within an existing ground could nevertheless be considered, and a late pleading objection was rejected.
6. The Court of Appeal was concerned with points of law and could not revisit specialist economic assessments by Ofcom or the Tribunal. The appropriateness of a common-cost methodology depended on regulatory purpose. In the context of the 2004 LLMR, paragraph 7.63 referred to potential competition in the wholesale AISBO market. Condition HH3.1 therefore permitted Ofcom to use DSAC; FAC was not mandatory.

• Court of Appeal (Civil Division) dismissed BT’s appeal on prospective regulation, legal certainty and interest, and dismissed TalkTalk’s appeal on the DSAC issue.
• Competition Appeal Tribunal determined three appeals on 1 August 2014 arising from Ofcom’s 20 December 2012 determination. It largely upheld Ofcom, but directed that interest be awarded and upheld the use of DSAC.
• Ofcom had found BT in breach of Condition HH3.1 and ordered repayments for historic overcharging, without interest.