" (a) promoting regulatory predictability by ensuring a consistent regulatory approach over appropriate review periods;

(b) ensuring that, in similar circumstances, there is no discrimination in the treatment of undertakings providing electronic communications networks and services;

(c) safeguarding competition to the benefit of consumers and promoting, where appropriate, infrastructure-based competition;

(d) promoting efficient investment and innovation in new and enhanced infrastructures, including by ensuring that any access obligation takes appropriate account of the risk incurred by the investing undertakings and by permitting various cooperative arrangements between investors and parties seeking access to diversify the risk of investment, whilst ensuring that competition in the market and the principle of non-discrimination are preserved;

(e) taking due account of the variety of conditions relating to competition and consumers that exist in the various geographic areas within a Member State;

(f) imposing ex-ante regulatory obligations only where there is no effective and sustainable competition and relaxing or lifting such obligations as soon as that condition is fulfilled."

" Facilitating change of provider

1. Member States shall ensure that all subscribers with numbers from the national telephone numbering plan who so request can retain their number(s) independently of the undertaking providing the service in accordance with the provisions of Part C of Annex I.

2. National regulatory authorities shall ensure that pricing between operators and/or service providers related to the provision of number portability is cost-oriented, and that direct charges to subscribers, if any, do not act as a disincentive for subscribers against changing service provider.

3. National regulatory authorities shall not impose retail tariffs for the porting of numbers in a manner that would distort competition, such as by setting specific or common retail tariffs. [...]"

" Obligations imposed in accordance with this Article shall be based on the nature of the problem identified, proportionate and justified in the light of the [Article 8 Objectives] . Such obligations shall only be imposed following consultation in accordance with Articles 6 and 7 of [the FD] ."

" 1. A national regulatory authority may, in accordance with the provisions of Article 8, impose obligations relating to cost recovery and price controls, including obligations for cost orientation of prices and obligations concerning cost accounting systems, for the provision of specific types of interconnection and/or access, in situations where a market analysis indicates that a lack of effective competition means that the operator concerned may sustain prices at an excessively high level, or may apply a price squeeze, to the detriment of end-users. [...]

2. National regulatory authorities shall ensure that any cost recovery mechanism or pricing methodology that is mandated serves to promote efficiency and sustainable competition and maximise consumer benefits. [...]

3. Where an operator has an obligation regarding the cost orientation of its prices, the burden of proof that charges are derived from costs including a reasonable rate of return on investment shall lie with the operator concerned. For the purpose of calculating the cost of efficient provision of services, national regulatory authorities may use cost accounting methods independent of those used by the undertaking. National regulatory authorities may require an operator to provide full justification for its prices, and may, where appropriate, require prices to be adjusted."

(1)                citizens in relation to communications matters; and

(2)                consumers in relevant markets, where appropriate by promoting competition.

(1)                the principles under which regulatory activities should be transparent, accountable, proportionate, consistent and targeted only at cases in which action is needed; and

(2)                any other principles appearing to Ofcom to represent the best regulatory practice.

" (b) the desirability of promoting competition in relevant markets;

[...]

(d) the desirability of encouraging investment and innovation in relevant markets;"

(1)                to promote competition (section 4(3) of the 2003 Act);

(2)                to encourage the provision of network access and service interoperability for the purpose of securing (section 4(7) and (8)):

" (a) efficiency and sustainable competition;

(aa) efficient investment and innovation; and

(b) the maximum benefit for the persons who are customers of communications providers and of persons who make associated facilities available."

" (a) the imposition of burdens which are unnecessary; or

(b) the maintenance of burdens which have become unnecessary."

"(1) General conditions may include conditions which — [...] (e) require an allocation of particular telephone numbers to be transferred from one communications provider to another in the circumstances provided for in the conditions; [...]

(2) General conditions may also — [...] (f) regulate the procedures to be followed, the system to be applied and the charges to be imposed for the purposes of or in connection with, the transfer of an allocation from one person to another."

" (h) "Number Portability" means a facility whereby Subscribers who so request can retain their Telephone Number on a Public Communications Network, independently of the person providing the service at the Network Termination Point of a Subscriber provided that such retention of a Telephone Number is in accordance with the National Telephone Numbering Plan;

[...]

(k) "Portability" means any facility which may be provided by a Communications Provider to another Communications Provider enabling any Subscriber who requests Number Portability to continue to be provided with any Public Electronic Communications Service by reference to the same Telephone Number irrespective of the identity of the person providing such a service [...]"

"The Communications Provider shall provide Number Portability within the shortest possible time, including subsequent activation, on reasonable terms and conditions, including charges, to any of its Subscribers who so request."

"The Communications Provider shall, pursuant to a request from another Communications Provider, provide Portability as soon as is reasonably practicable in relation to that request on reasonable terms. Any charges for the provision of such portability shall be made in accordance with the following principles:

(a) subject always to the requirement of reasonableness, charges shall be cost oriented and based on the incremental costs of providing Portability unless:

(i) the Donor Provider and the Recipient Provider have agreed another basis for the charges, or

(ii) the Office of Communications has directed that another basis for charges should be used,

(b) the Donor Provider shall make no charge in relation to System Set-Up Costs or Additional Conveyance Costs;[...]

(d) charges levied by the Donor Provider shall be based on the reasonable costs incurred by it in providing Portability with respect to each Telephone Number; [...] "

" (a) "Additional Conveyance Costs" mean any costs incurred by the Donor Provider associated with resources used in:

(i) effecting the switch-processing required to set up each ported call; and

(ii) providing the switch and transmission capacity for any part of the duration of each ported call,

additional to the costs of conveyance of non-ported calls from the Donor Provider's network to the Recipient Provider's network; [...]"

"[...] we consider that the following principles should inform our approach to disputed questions upon which Ofcom has exercised a judgment of the kind under discussion:

(a) Since the Tribunal is exercising a jurisdiction "on the merits", its assessment is not limited to the classic heads of judicial review, and in particular it is not restricted to an investigation of whether Ofcom's determination of the particular issue was what is known as Wednesbury unreasonable or irrational or outside the range of reasonable responses.

(b) Rather the Tribunal is called upon to consider whether, in the light of the grounds of appeal and the evidence before it, the determination was wrong. For this purpose it is not sufficient for the Tribunal simply to conclude that it would have reached a different decision had it been the designated decision-maker.

(c) In considering whether the regulator's decision on the specific issue is wrong, the Tribunal should consider the decision carefully, and attach due weight to it, and to the reasons underlying it. This follows not least from the fact that this is an appeal from an administrative decision not a de novo rehearing of the matter, and from the fact that Parliament has chosen to place responsibility for making the decision on Ofcom.

(d) When considering how much weight to place upon those matters, the specific language of section 316 to which we have referred, and the duration and intensity of the investigation carried out by Ofcom as a specialist regulator, are clearly important factors, along with the nature of the particular issue and decision, the fullness and clarity of the reasoning and the evidence given on appeal. Whether or not it is helpful to encapsulate the appropriate approach in the proposition that Ofcom enjoys a margin of appreciation on issues which entail the exercise of its judgment, the fact is that the Tribunal should apply appropriate restraint and should not interfere with Ofcom's exercise of a judgment unless satisfied that it was wrong."

(1)                Additional transmission costs. The call necessarily includes added call setup processing and at least an extra switch in the Donor network compared to a non-ported call.

(2)                Call quality. A non-ported call between two NGNs can benefit from higher call quality and various features not available using TDM technology. However, an onward routed call using BT's TDM network cannot support these enhanced features.

(3)                Reliability. TDM networks may not provide the same level of security and resilience for porting as for basic telephony services.

(4)                Dependency. The ported customer is irrevocably linked to the original number range holder and forever dependent upon its technical and financial viability.

" 2.49. Our aim is to provide greater clarity as to compliance with the requirements of GC18 going forward; avoid unnecessary disputes, so far as is possible; and facilitate the resolution of disputes, should CPs fail to agree commercial terms after the publication of this guidance.

2.50. We would expect to apply this guidance when resolving a dispute concerning porting charges, taking into account the specific circumstances of the case."

" - promoting competition in the provision of electronic communications networks and services, associated facilities and the supply of directories;

- taking account of the desirability of Ofcom in carrying out its functions in a manner which, so far as practicable, does not favour one form of or means of providing electronic communications networks, services or associated facilities over another; and

- encouraging, to such extent as Ofcom considers appropriate for certain prescribed purposes, the provision of network access and service interoperability, namely securing efficient and sustainable competition and the maximum benefit for customers of communications providers."

(1)                " Cost causation: costs should be recovered from those whose actions cause the costs to be incurred at the margin";

(2)                " Cost minimisation: those that can affect the size of the costs should have an incentive to minimise them"; and

(3)                " Effective competition: the mechanism for cost recovery should not weaken effective competition. The charging structure should not distort competition."

" To determine whether the APCCs that BT has charged Gamma and Vodafone [...] were set in accordance with GC18.5(a).

If BT's APCCs were not set in accordance with GC18.5(a), to determine what the APCCs should have been [...] and what payments (if any) BT should make to Gamma and/or Vodafone as a result."

(1)                Section E deals with Gamma's argument that BT's grounds of appeal 2(a) and 3 were brought out of time.

(2)                Section F describes the evidence of the various witnesses and experts who gave evidence before us.

(3)                Section G deals with Ground 1 of BT's appeal.

(4)                Section H deals with Ground 2(a) of BT's appeal.

(5)                Section I deals with Ground 2(b) of BT's appeal.

(6)                Section J deals with Ground 3 of BT's appeal.

(7)                Section K summarises our conclusions.

" BT could not appeal on the merits against Ofcom's move from LRIC+ to LRIC for the purposes of GC18.5(a), notwithstanding the terms of Article 4 FD, because it was contained in "Guidance": it therefore entailed no "decision" within the meaning of section 192(1) of the 2003 Act. No appeal could be brought to question the merits of the Guidance, therefore, unless and until either Ofcom had determined a dispute between CPs under sections 188 and 190 of the 2003 Act, or Ofcom purported to issue an enforcement notice in respect of an alleged breach of the condition under sections 96A and 96C of the 2003 Act. Ofcom's deliberate use of "Guidance" has therefore created the invidious position that the merits of what is tantamount to a new condition can only be tested by BT once it has already been accused of acting in breach of it."

" The reason for those comparatively short windows of time is well-established in administrative law. As Baroness Hale explained in A v Essex County Council [2010] UKHL UKSC 33 at paragraph 116: "there is a significant public interest in public law claims against public bodies being brought expeditiously", in particular because the public authority's decision "may affect large numbers of people or [provide the basis] upon which other decisions have depended and action been taken."

" As Mr Farmer explains, the need for legal certainty is crucial for participants in the telecommunications sector. That is particularly the case for the smaller companies and prospective market participants, such as those in Gamma's wholesale customer base. Margins are very small for such operators and they need to be able to rely on Ofcom's guidance when making investment decisions, rather than facing the prospect that it might be challenged and overturned at some indeterminate point in the future; BT's suggestion that it must breach the Guidance and face enforcement before it is entitled to challenge Ofcom's decision is highly unattractive. BT was an active participant in the Consultation and a key addressee of the Guidance. It should not have had to choose between (i) complying indefinitely with a regulatory pronouncement it believes to be unlawful and (ii) putting itself in a position of deliberate breach of the regulator's conclusions, pending enforcement action."

93.               Ofcom did not adopt Gamma's time-bar argument or present any submissions that Grounds 2(a) and 3 were time-barred. We would have found it helpful to have received submissions on this point from Ofcom.

(1)                BT cannot be deprived of a statutory right of appeal. Least of all can it forfeit such a right because Ofcom chooses to publish "Guidance" as to how it will determine a future dispute as to the interpretation of a condition, rather than (as it could have done) amend the condition itself to include express words as to its (new) meaning.

(1)                The Guidance was published following a full consultation by Ofcom.

(2)                It was unequivocal and final: no further step was required or anticipated to bring the change from LRIC+ to LRIC into effect.

(3)                It was specific and prescriptive: in requiring APCCs to be calculated on the basis of LRIC, Ofcom in effect set an exact maximum level. (Indeed, in the subsequent Determination, Ofcom calculated specific figures for the levels of APCCs that BT should have charged Gamma and Vodafone.)

(4)                It was mandatory, in the sense that it imposed a requirement on CPs to calculate their APCCs on the basis of LRIC to comply with GC18.

(5)                It was intended to have legal effect and, indeed, had such effect - as demonstrated by BT's subsequent changes in APCCs.

" 1. Member States shall ensure that effective mechanisms exist at national level under which any user or undertaking providing electronic communications networks and/or services who is affected by a decision of a national regulatory body has the right of appeal against the decision to an appeal body that is independent of the parties involved. This body, which may be a court, shall have the appropriate expertise available to it to enable it to carry out its functions. Member States shall ensure that the merits of the case are duly taken into account and that there is an effective appeal mechanism [...]"

" At this stage it is necessary to return to the point that the rule of court applies across the board to judicial review applications. If a decision-maker indicates that, subject to hearing further representations, he is provisionally minded to make a decision adverse to a citizen, is it to be said that time runs against the citizen from the moment of the provisional expression of view? That would plainly not be sensible and would involve waste of time and money. Let me give a more concrete example. A licensing authority expresses a provisional view that a licence should be cancelled but indicates a willingness to hear further argument. The citizen contends that the proposed decision would be unlawful. Surely, a court might as a matter of discretion take the view that it would be premature to apply for judicial review as soon as the provisional decision is announced. And it would certainly be contrary to principle to require the citizen to take such premature legal action. In my view the time limit under the rules of court would not run from the date of such preliminary decisions in respect of a challenge of the actual decision. If that is so, one is entitled to ask: what is the qualitative difference in town planning? There is, after all, nothing to indicate that, in regard to RSC Ord 53, r 4(1), town planning is an island on its own."

" This decision of course is binding on this court. But it is binding for what it decides; and to my mind it is plainly distinguishable from the present case. In that case, there was a resolution to grant outline permission subject to, among other things, completion of a s.106 agreement: a context quite different from the present. As to his general approach, Lord Steyn gave a striking example, in paragraph 43 of his judgment, of a provisional decision (taken from the field of licensing)."

" That simply is not the situation here. Here, the Council was not provisionally resolving to enter any outsourcing contract at all, let alone a provisional contract relating to the DRS project or to the NSCSO project. What, as the context and the terms of the relevant decisions in November 2010 and March 2011 show, the Council was doing was actually deciding to enter into a procurement process by way of competitive dialogue. That process then, and in accordance with the 2006 Regulations, proceeded in stages. Thus, in contrast with the initial resolution in Burkett, work here was lawfully and foreseeably done and money was expended precisely because of such decisions. The decisions thus had and were intended to have legal effect: not, of course, in terms of sanctioning a binding contract but in terms of authorising and causing the initiation of the procurement process, with attendant inevitable heavy expenditure and significant use of time and resources. Without such decisions, those things could not and would not have been done. Those decisions are thus, indeed, in my view properly to be regarded as substantive or, if you like, "final" (using Mr Giffin's word) for that purpose. They are not to be regarded as contingent or provisional, even though there was no guarantee at all that any outsourcing contract or contracts might ultimately result. Mr Giffin did suggest that so to conclude would be tantamount to resurrecting "the real basis of complaint" approach put forward in the Greenpeace case but which was disapproved in Burkett. In my view, however, it does no such thing: rather, as I have sought to say earlier in this judgment, it identifies the actual decision by reference to which the grounds of challenge first arose."

(1)                BT called two witnesses of fact:

(i)                  Mr John Morden. Mr Morden is a former employee of BT from September 1972 until July 2014 when he retired. His final role, which he started in 2008, was as General Manager, Voice and Interoperability in the Regulatory Affairs Division of BT Wholesale. Before that, from 2005 until 2008 Mr Morden was General Manager, Voice Portfolio, within BT Wholesale. Mr Morden retired in July 2014 and following his retirement he was engaged by BT to support the team responding to the disputes with Gamma and Vodafone. Mr Morden gave two witness statements ("Morden 1" and "Morden 2"), and was cross-examined on Day 2 (19 May 2016). Mr Morden clearly had a very deep technical mastery of the matters relating to fixed line telecommunications, including porting conveyance. He gave evidence straightforwardly, in a helpful manner.

(ii)                Mr Kevin Young. Mr Young joined BT in 1976 and still works at BT. Since 2013 he has acted as a Revenue Assurance Manager within BT Wholesale. From 2009 until 2013 Mr Young worked in the BT Wholesale Product Management team and from 2000 until 2009 he was the Interconnect Policy & Contract Manager. Mr Young gave one witness statement ("Young 1"), and was cross-examined on Day 2 (19 May 2016). Mr Young was a straightforward and helpful witness.

(2)                Ofcom called one witness of fact:

(i)                  Mr Steve Perry. Mr Perry is a technical adviser in Ofcom's Competition Group. Mr Perry gave one witness statement ("Perry 1"), and was cross-examined on Day 3 (20 May 2016). Like Mr Morden, Mr Perry clearly had a very thorough understanding of the technical matters relating to fixed-line telecommunications and porting. We found him straightforward and helpful.

(3)                The CP Group called three witnesses of fact:

(i)                  Mr Paul Rosbotham. Mr Rosbotham is the Senior Regulatory Manager at Vodafone and has held this role since 2013. Mr Rosbotham gave one witness statement ("Rosbotham 1"), and was cross-examined on Days 3 and 4 (20 and 23 May 2016). The cross-examination of Mr Rosbotham was lengthy, in part we feel because Mr Rosbotham tended towards an argumentative approach in his responses. Nevertheless, Mr Rosbotham's evidence was largely relevant and of assistance to the Tribunal.

(ii)                Ms Ruth Kennedy. Ms Kennedy is Head of Voice and Interconnect at TalkTalk and joined TalkTalk in September 2011, having previously worked for seven years as UK Wholesale Manager at eircom UK. Ms Kennedy gave one witness statement ("Kennedy 1"), and was cross-examined on Day 4 (23 May 2016). Ms Kennedy made clear that her expertise was in the commercial side of the TalkTalk's business, as opposed to its technical operations. Ms Kennedy was a helpful witness, although we consider that it was unfortunate that an assertion in her written evidence, that TalkTalk had never even considered offering a transit service to other CPs using the DLE Handover product, had to be corrected in examination-in-chief.

(iii)              Mr Leonard Moore. Mr Moore is Head of Carrier Relations at Sky, which is a role he has held since 2008. Prior to that Mr Moore was Sky's Head of Product Development, a role that he held since joining Sky in 2006. Before that he worked at a number of telecoms operators since 1982. Mr Moore gave one witness statement ("Moore 1"), and was cross-examined on Day 4 (23 May 2016). Mr Moore was a helpful witness, who presented his evidence robustly.

(4)                Gamma called one witness of fact:

(i)                  Mr Peter Farmer. Mr Farmer is the Head of Regulatory Affairs at Gamma Telecom Holdings Limited. Mr Farmer gave one witness statement ("Farmer 1"), and was cross-examined on Day 4 (23 May 2016). Mr Farmer was a straightforward and helpful witness.

(1)                BT called Dr Daniel Maldoom, a partner at DotEcon Ltd, an economic consultancy with particular focus on telecommunications and networked industries. Dr Maldoom provided two expert reports ("Maldoom 1" and "Maldoom 2"), the latter in response to the evidence of Ofcom's expert economist. Dr Maldoom was cross-examined on Day 5 (24 May 2016). Dr Maldoom's evidence primarily focused on Grounds 2(a) and 3 of BT's appeal. Dr Maldoom was a helpful witness, who readily made concessions when appropriate. However, as we note in Section J, much of his evidence was of a hypothetical nature.

(2)                Ofcom called Mr William Godfrey, a Director of Economic Analysis in Ofcom's Competition Group. Mr Godfrey provided one expert report ("Godfrey 1"). Mr Godfrey was cross-examined on Days 5 and 6 (24 and 25 May 2016). Mr Godfrey's evidence focused exclusively on Grounds 2(a) and 3 of BT's appeal. We found Mr Godfrey to be a helpful witness. He supported his opinions, in certain cases, with empirical factual evidence.

" The services which BT continued to charge at LRIC+ rates were for "inter-switch conveyance", which is not necessary to the provision of number portability. Ofcom erred in fact and/or in law in concluding otherwise. Those services therefore fell outside the scope of GC18.5(a), and so should not have been treated as subject to a cost orientation requirement at all."

" subject always to the requirement of reasonableness, charges shall be cost oriented and based on the incremental costs of providing Portability".

(1)                that " necessity" (" contestability") forms a part of the legal test to establish whether a service (in this instance, ISC) forms part of the provision of portability; and

(2)                that as a matter of fact the purchase of ISC from BT is "unnecessary" ( i.e. avoidable or contestable).

" in ordinary language, if a facility is provided for the purpose of porting, that facility (and every component within it) enables porting. It matters not that porting could also have been enabled by a different facility, perhaps without ISC. What matters is that it was in fact provided through the facility in question."

(1)                We agree with Ofcom that the language of Article 30(2) USD and GC 18.5 clearly encompass all costs " related to" portability and not just those costs which are " necessary" or " unavoidably linked" to portability.

(2)                We consider it highly relevant that Article 30(2) USD draws no distinction between contestable and non contestable costs. We find no support for the gloss to Article 30(2) USD which BT contends for. The language of the USD is clear. On the contrary, it is clear that the broad language of Article 30(2) is intended to be all-encompassing of costs in order to ensure consumer choice, as indicated by Recital 42.

(3)                Whilst we recognise the difference in the regulatory context of the Mobistar case, the spirit of the judgment is clear: Article 30(2) is not to be interpreted narrowly as this would be contrary to the Directive's objectives which include the encouragement of porting.

(4)                In our view the construction of GC 18.5(a) for which Ofcom contends does not give rise to any inconsistency with the treatment of directly routed ported calls or ported calls carried by third party transit providers as contended by BT. We agree with Ofcom that no porting charges arise under the direct routing method which fall to be regulated. We also consider that third party transit of ported calls (should such a service exist or come into being) is not sufficiently closely connected to the ported call to be classified as being " related to" the provision of number portability because it is not provided by the DCP.

"[Since deregulation] CPs receiving ported calls no longer need to purchase inter-switch conveyance from BT in order to serve their customers who have ported from BT (with the advent of the DLE Handover product in 2010)."

BT goes on to explain that this choice must be understood in the light of the long run interests of CPs:

" Over the long run, the extent to which the RCP takes inter-switch conveyance (whether LTC or ITC) from the DCP or inter-switch transit from another CP (whether ITC or ITT) is a choice of the RCP, determined by how it builds out its network and locates its points of interconnection."

(1)                collect all ported calls from the DLE to avoid LTC;

(2)                collect all ported calls from all relevant Tandems to avoid ITC;

(3)                and/or use third party transit.

(1)                the DLE handover product for porting traffic provided by BT requires CPs to provide a separate route for ported traffic so that it is treated differently to non-ported traffic. This approach to DLE interconnection is likely to be less efficient than treating ported and non-ported traffic the same and having a single route for all traffic. It may also lead to implementation costs for the RCP to set up the segregated route;

(2)                whilst CPs could, in theory, avoid ISC on traffic handed to BT at the Tandems, an RCP has fewer options for ported traffic than for non-ported traffic. For non-ported traffic, ISC on BT's network can be avoided without interconnecting to all BT's Tandems (and indeed, for non-ported transit traffic, BT's network can be avoided entirely) whereas for porting traffic the only option is to build routes to more Tandem exchanges. These routes are not necessarily required for non-ported traffic. Further, RCPs do not have sufficient data to know which specific Tandems to build out to, so that they would need to build to all Tandems that are parents of the DLEs from which they have ported numbers in order to avoid ISC; and

(3)                presently, no third party transit services for ported traffic exist to allow traffic to be delivered from BT as the DCP to the RCP, and so this is not an alternative for RCPs to avoid ISC.

Collecting calls from Tandems

Collecting calls from the DLE layer

" If CP B did decide to build out additional routes, this would mean specific routes being built for ported traffic, and decisions about network build being made specifically for ported traffic. In addition, the RCP does not know, from the information provided to it by BT, at which Tandems ported traffic is being handed over to BT. Whilst data provided by BT identifies the extent to which ITC is being used in general, my understanding is that it does not indicate volumes of ported traffic by specific Tandems. This means an RCP could not determine which Tandems it should interconnect with to collect ported traffic, or how big a route it should deploy. Returning to the example [...] CP B would know that it could avoid paying ITC on ported calls if it built out to an additional Tandem. However, it would be unaware that it was BT Tandem 1, specifically, that it needed to build to. This suggests that an RCP would need to connect to every Tandem (or at least every Tandem that is connected to any DLE from which the RCP has ported numbers) in order to be certain of avoiding ITC." (Footnotes omitted.)

Collecting calls from the DLE layer

Collecting calls from Tandems

" ... The RCP does not know where calls originate from, and does not receive information about, traffic delivered by different OCPs to each specific Tandem unit, which BT is now conveying via another Tandem to get to the RCP. The RCP, therefore, has no data on which to make a properly informed choice to connect to that node and amend its routing to use that connection.

In addition, the RCP cannot derive this information itself, because the signalling of the call tells it only the destination number (from which it can derive the Donor DLE, but nothing else) and the Calling Line Identity ("CLI"), which does not provide any information about the OCP or whether BT has routed the call via multiple Tandem nodes.

Therefore, the RCP has no way of knowing which Tandem nodes to connect to in order to avoid the BT conveyance service, so the only theoretical option is to connect to every BT Tandem node and set up routing on each node to use these connections on the off-chance that an OCP might be delivering sufficient ported traffic there to justify the connection. This is clearly not efficient. In effect, BT is telling the RCP that it is routing calls inefficiently, charging them for it, but not providing the information to allow the RCP to avoid this conveyance service."

"Constraining DLE routing for ported traffic to dedicated physical routes means that, despite Vodafone having paid for 600+ connections to DLEs, Vodafone would need to deploy parallel routes for ported traffic and any capacity deployed would need to be justified solely on the basis of expected ported traffic from that DLE. Given that BT's network comprises over 600 DLEs and the smallest route available is 60 parallel voice channels, this constraint on the DLE handover product renders the use of [the DLE Handover product] uneconomic; the volume of traffic on such a dedicated link would be unlikely to justify the cost.

[...] From Vodafone's perspective, the significant shortcomings of the DLE handover product precluded Vodafone from purchasing the product, rather than a lack of any desire to route ported calls directly from DLEs. In addition, our decision was certainly not influenced by '... speculation that [APCC] prices could be regulated down to an extremely low 'pure' LRIC cost' as suggested by [Mr] Morden." (Emphasis in the original.)

" First of all, the APCC only applies to calls which are originated on providers other than BT. Anything which is originated on BT doesn't come into the APCC calculation. Although BT provide us with a snapshot, once per year, of the total traffic that was originated on their network versus other CP's networks, that doesn't help us when making an assessment for a particular DLE. The reasons for that are in essence what is known in telecoms circles as "community of interest"; people are more likely to make calls to their neighbours than to the other end of the country.

So if I can take a couple of extreme cases, Bracknell in Berkshire is a new town and was cabled up as part of the construction of the new town. It will therefore have a disproportionately high volume of Virgin Media customers versus BT customers. Therefore, when you are looking at calls originated to Bracknell numbers, you will see a higher proportion of calls from Virgin Media and from other providers than you will BT when compared to the average.

Likewise, if I take the opposite example, if I was to take say Wick in Scotland, where there is not a huge amount of presence on the part of other providers, the amount of off net originating traffic to Wick numbers will be very close to 0 and the amount of BT originated traffic will be nearly 100 per cent.

Now, I can make broad-brush assumptions like that, but in order to have accurate data to actually plan routes, my finger in the air isn't really sufficient. So the second aspect then is that once we have derived the traffic that is coming from CPs other than BT, the DLE handover route would only be used for calls which are delivered to the DLE by the originating operator. Some traffic will be delivered to the Tandem unit. Once again, BT provides us with snapshot information on a nationwide basis specific to Vodafone. However, the connectivity to an individual DLE by originating operators will vary dramatically. If you have a DLE in London which is co-located with a Tandem unit, there will be lots of originating CPs connected to it, therefore the proportion of traffic which is delivered at the DLE level will be high.

Direct routing

Transit

Direct routing

(1)                Contestability/necessity does not form a part of the legal test of whether a charge falls within Article 30(2) USD or GC 18.5(a) (see section G(4) above).

(2)                We find (for the reasons at section G(7)) that:

(i)                  ISC at the DLE layer and ISC between parent Tandems is not contestable.

(ii)                ISC is contestable only between non-parent Tandems.

" Charges for inter-switch conveyance were in fact cost oriented, as Ofcom had at all times accepted up to the publication of the Guidance. Ofcom had no lawful basis to purport to use its regulatory powers to amend the effect of GC18.5(a) to have a more restrictive effect on BT's freedom to provide those services by excluding the ability of BT to recover common costs. There is already effective competition in all retail markets for telephone services, and there is also effective competition for the supply of the services used for inter-switch conveyance. There is no evidence that consumers are deterred from making use of number portability services. There was no necessity for further regulatory intervention, and the effect of Ofcom's decision was disproportionate and unlawful."

"33. At the outset, it should be noted that Article 30(2) of the Universal Service Directive requires the national regulatory authorities to ensure that the operators set the prices on the basis of their costs and, furthermore, that the prices do not dissuade consumers.

34. Once it is established that prices are fixed on the basis of costs, that provision confers a certain discretion on the national authorities to assess the situation and define the method which appears to them to be the most suitable to make portability fully effective, in a manner which ensures that customers are not dissuaded from making use of that facility.

35 Clearly the limits of that discretion have not been exceeded in the present case by the national regulatory authorities. A method consisting in defining a maximum price, such as that chosen by the Belgian authorities, may be considered compatible with Article 30(2) of the Universal Service Directive, provided that it is genuinely possible for new operators to contest the application of maximum prices by operators already present in the market by showing that those prices are too high in relation to their cost structure."

" the whole scheme of the Directives is to leave the arrangements for interconnection to the parties unless there are grounds for regulatory intervention. The permissible grounds of regulatory intervention in the case of a CP without significant market power are that the interconnection terms have been framed or are operating in a manner which is inconsistent with end to end connectivity or conflicts with the Article 8 objectives."

"... the sole basis on which Ofcom rejected the new charges was that the welfare test having been inconclusive, it had not been demonstrated that BT's new schedule of charges would produce consumer benefits. In my opinion this was wrong in principle for substantially the reasons given by the CAT. BT were contractually entitled to vary their charges unless the proposed variations were inconsistent with Article 8 objectives, including the objective of ensuring consumer benefit in accordance with Article 8.2(a)."

" ... the European Court of Justice held that, subject to the requirement of cost orientation, Article 30(2) USD confers a discretion on national regulatory authorities to define the methodology which appears to them to be the most suitable to make portability fully effective, in a manner that ensures that consumers are not dissuaded from making use of that facility."

"[...] ' whilst Ofcom's dispute resolution powers were recently considered in the [08 case] it did not believe that the conclusions in the Supreme Court Judgment are materially relevant to this case' on the basis that 'the Supreme Court Judgment related to a largely unregulated product ... whereas this case concerns a specific breach of GC 18 and Ofcom guidance pursuant to it'. [Gamma] nevertheless put forward arguments to the effect that the objectives in Article 8 of the Framework Directive would be met by Ofcom accepting the dispute and finding in Gamma's favour."

" was not subject to specific regulation by Ofcom and the judgment dealt with the approach that Ofcom should adopt to resolving disputes in such circumstances. [...] The Supreme Court does not address the approach Ofcom should adopt to disputes about compliance with regulatory obligations. BT's reference to the Supreme Court's comments about leaving interconnection to the parties unless there are grounds for regulatory intervention fails to recognise that Ofcom - in the light of the requirements of the relevant Directives - has previously determined that there were grounds for regulatory intervention in this area, and accordingly imposed GC18 with which BT (and all other CPs) are obliged to comply."

(1)                BT now appeared to concede that there was no single competitive price for ISC;

(2)                in view of the provisions of Article 30(2) USD, which itself identified a ground for intervention in the case of number portability, Ofcom did not need to identify any additional threshold of justification which it was required to surmount;

(3)                it was not correct that APCC charges have been set at LRIC+ rates since 2002; and

(4)                as regards BT's contention that Ofcom's approach is inconsistent with its treatment of mobile operators and direct routing, Ofcom accepts that charges related to mobile interconnection costs were subject to Article 30 USD, but it found no significant costs to include in regulated charges. At present there is no material direct routing of ported calls. There was no inconsistency with the position adopted by Ofcom in its 2013 NBMR.

" National Regulatory Authorities shall ensure that pricing between operators and/or service providers related to the provision of number portability is cost oriented, and that direct charges to subscribers, if any, do not act as a disincentive for subscribers against changing service provider."

" Further and in any event, GC18.5 (a) provided for an exception allowing BT to agree another basis for the charges, which BT had done, with the result that the cost orientation obligation did not apply. Ofcom erred in law in concluding otherwise."

" (a) subject always to the requirement of reasonableness, charges shall be cost oriented and based on the incremental costs of providing Portability unless: (i) The Donor Provider and the Recipient Provider have agreed another basis for the charges;".

(a) there is no single price for ISC, which is applied to services provided to various companies in the markets;

(b) the price of ISC varies by product: Gamma and BT have not agreed a single price for ISC, which applies to BT's product range;

(c) ISC is sold as part of a bundle of services provided by BT to Gama and no specific price has been negotiated or agreed in relation to ISC costs.

(1)                its charges for the ISC elements of APCCs have always been set on the basis of their similarity to transit of non-ported calls (Ground 2(a); NoA paragraph 57); and

(2)                the rate for the ISC component of the APCC is a standard rate applying to both ported and non-ported traffic and there is no sustainable basis on which to differentiate on price (and BT does not do so) (Ground 2(b); NoA paragraph 65).

312.           Mr Perry's table 3, which uses rates that applied at the time of the dispute, shows that the rate used for LTC for non-ported call termination, IA and CPS at 0.0903 (which is the same rate as found in Mr Morden's tables 8 and 9), is different from the rate used in the Gamma and Vodafone APCC calculations, which rates differed as between Gamma and Vodafone. The rate used for ITC transit for non-ported calls at 0.0207 (which is the same rate as found in Mr Morden's tables 8 and 9) differed from the rate used in the Gamma and Vodafone APCC calculation [CONFIDENTIAL TO BT: which rates differed as between Gamma and Vodafone].

(f) Mr Rosbotham (Vodafone)

(g) Mr Moore (Sky)

" Alternatively, even if it is in principle open to Ofcom to change the relevant cost standard from LRIC+ to LRIC (which it is not), Ofcom is wrong to decide to do so, as LRIC+ is the clearly more appropriate cost standard to apply to the inter-switch conveyance element of the APCC. On a proper analysis, the cost recovery principles relied upon by Ofcom (of cost causation, cost minimisation and effective competition) offer no material support for Ofcom's conclusion that LRIC is to be preferred over the LRIC+ rate. Ofcom's decision is harmful to the interests of competition, efficiency and innovation, and is further inconsistent with Ofcom's treatment of the equivalent services used in mobile number portability and direct routing. It is further based on erroneous and inadequate reasoning. The change in cost standard is unnecessary and disproportionate."

Cost minimisation

Effective competition

(1)                concentrated only on retail markets which are already subject to effective competition, and where any incremental gain would be very limited at best;

(2)                failed to address the effect on wholesale markets at all, or to consider the distortion of competition caused by moving from a LRIC+ to a LRIC cost standard in particular;

(3)                erroneously conflated one-off migration charges and ongoing charges for wholesale services related to use of network assets; and

(4)                correctly recognised that the regulatory treatment of termination rates is irrelevant, but then placed erroneous reliance on an equally irrelevant and inapt analogy with two-way markets.

Retail competition

Wholesale markets

One-off migration charges and on-going charges

Termination and two-sided markets

Inconsistency in Ofcom's approach

Cost causation

Cost minimisation

Incentives to move to direct routing

Effective competition

(a) Effects on retail competition. Ofcom does not accept, as BT contends, that any increase in retail competitive intensity brought about by the use of LRIC instead of LRIC+ would be very limited. A large proportion of consumers still purchased voice services separately to other services. Accordingly, BT is wrong to say that voice services are now a "minor contributor to consumers' switching decisions". In any event, voice services play a role even where the consumer does purchase bundled services. It is true that the competitive nature of retail markets limits the scope for further gains in competitiveness, but that does not mean that there is no scope for such gains. The range of market outcomes is a continuum, not a binary concept (competitive/uncompetitive).

(b) Effects on wholesale markets. BT argues that LRIC would increase the incentives on RCPs to use BT's network for ported traffic rather than their own network. Ofcom submits that there is no evidence that this would happen but if it did that would be an efficient choice. Further, that would increase utilisation of BT's core network and would not erode economies of scale. It would be efficient for RCPs to have an incentive to port numbers from BT; decisions based on LRIC are likely to be efficient, which is all the more important given that telephone numbers are scarce. If an RCP faced reduced incentives to interconnect deeper into BT's network than is currently the case, that would reflect an efficient choice, if responding to price signals based on LRIC.

(c) One-off migration charges. BT argues that in deciding upon LRIC, Ofcom has wrongly conflated one-off migration charges (in respect of which LRIC has been applied in other contexts) with ongoing charges for wholesale services related to the use of network assets. However, any rational CP considering its investment in attracting ported customers would consider not only the immediate costs of acquiring a customer but also the ongoing costs - i.e. how they will affect the lifetime customer value. Accordingly, LRIC has similar advantages in the context of ongoing costs as in the context of one-off charges.

(d) Termination and two sided markets. BT criticises paragraph 4.59 of the Guidance. In fact, Ofcom has not stated that porting conveyance is a two-sided market, but this is a helpful analogy. The essential point is that BT could recover common costs elsewhere, from those customers that do not switch and port away.

Alleged inconsistency

"As Mr Farmer explains, BT's presentation of this issue fails adequately to deal with four important factors:

(a) The United Kingdom is a complex telecommunications market with many and diverse participants, all of whose systems would have to be adjusted to accommodate direct routing. More widespread migration to NGNs would assist in this regard. However, it is by no means clear whether a universal migration to NGNs would be in the overall best interests of the market (as Ofcom indicates) and, indeed, BT itself has apparently decided not to make the shift to a fully Internet Protocol ('IP') based NGN. For example, BT abandoned its '21CN' project in 2010.

(b) There have already been a number of industry initiatives that sought to promote the shift to direct routing, one of which (Ofcom's 2007 decision) BT actively opposed. It is ironic, in this regard, that BT claims a change from LRIC+ to LRIC will have a "detrimental impact on incentives to move to direct routing at all" when BT's own view has, apparently, been that direct routing is not commercially desirable at the historical LRIC+ prices .

(c) [...]

(d) Finally, other parties in the market have made the shift to NGN and direct routing. Gamma made the shift to a NGN as early as 2006 and other providers, such as Sky and TalkTalk, are in the course of making, or have already made, that transition now. Gamma anticipates that it will soon be operating direct routing with other CPs. In short, the incentives to shift to direct routing are, and remain, sufficiently strong to encourage market participants to adopt it."

"First, the decision to direct route relates to the fact that BT operates (for the most part) a TDM network. The CP Group agrees entirely with Ofcom that

'... the only reason why onward routing might preclude the use of NGNs is if the OCP and RCP use NGNs but the DCP continues to use a TDM. In other words, the problem identified by BT is that whilst a number of other CPs have migrated to NGNs, BT has not yet commenced such a migration'.

As Rosbotham 1 explains, interworking between IP and TDM networks has a number of problems, including: a detrimental impact on call quality; and both the OCP and RCP having to incur costs associated with "gatewaying" a call from IP to BT's TDM network and from BT's TDM network back to IP. These are material costs.

Secondly, all members of the CP Group are committed to implement direct routing and are engaged in ongoing commercial negotiations to implement direct routing between themselves."

Cost causation

Cost minimisation

(1)                whether in relation to the cost recovery principle of effective competition, LRIC is likely to any material extent to increase incentives to compete for ported customers;

(2)                whether LRIC is likely to give rise to distortions in the wholesale market that Ofcom has failed to take into account;

(3)                whether LRIC will distort incentives to direct routing and whether LRIC will reduce incentives to move to IP networks.

(1)                The cost recovery principles of cost causation and cost minimisation;

(2)                whether LRIC or LRIC+ was likely to be more effective in achieving allocative efficiency;

(3)                whether porting is akin to a two sided market;

(4)                whether there was inconsistency in Ofcom's treatment of APCCs and its treatment of the equivalent services used in mobile number portability and direct routing;

(5)                whether there was inconsistency in the Guidance in relation to effective competition between the section on cost standard and the sections on who pays;

(6)                the relevance of fixed termination rates being fixed at LRIC;

(7)                whether Ofcom erroneously conflated one-off migration charges and ongoing charges for wholesale services related to use of network assets;

(8)                whether it is appropriate for BT to continue to earn a contribution to common costs from lost customers.

(1)                Section 3: The Regulatory background.

(2)                Section 4: The 2014 Guidance and the subsequent dispute.

(3)                Section 6: Pure LRIC versus LRIC-+plus for conveyance charges

(4)                Section 7: Direct vs. indirect routing

Section 3: The Regulatory background

Section 4: The 2014 Guidance and the subsequent dispute

Cost causation

Cost minimisation

Effective competition

Factors not considered in Ofcom's assessment

Changes in the regulation of termination rates

Two sided markets

Section 6: LRIC versus LRIC+ for conveyance charges

" Therefore, in summary, if a LRIC-plus cost orientation standard were adopted, then we would expect this to allow commercial determined pricing provided there is a reasonable degree of competition and no need to regulate within conveyance markets. However, a pure LRIC standard would most probably not permit commercially determined pricing, in that even with effective competition some mark-up over pure LRIC can be expected."

"146. Regulation of the porting charges under the indirect model needs to consider three broad issues:

a)       The level of porting charges may have effects in terms of the relative average costs of different types of providers and so potentially affect competition between CPs for customers;

b)       How porting charges might affect the incentives to switch to direct routing;

c)       Pricing of any porting conveyance needs to ensure that there are not perverse incentives created to split out traffic associated with ported calls, route it to arbitrage differences in the costs of conveying ported and non-ported traffic or distorting the choice of points of interconnection between DCPs and RCPs.

147. Of these effects, Ofcom identifies only the first, but then does not consider the factors affecting its magnitude. The second and third effects are not considered by Ofcom in the assessment within the Guidance (i.e. Chapter 4)."

(1)                There may be an incentive to split out ported traffic to convey this to a greater degree over BT's network, even where non-ported traffic between BT and the RCP is conveyed to a greater extent on the RCP's network, to arbitrage lower prices for conveyance of ported traffic;

(2)                Splitting of ported and non-ported traffic by different routes has the potential to erode economies of scale in core networks by fragmenting traffic over different links when it could be aggregated;

(3)                CPs could have an incentive to port numbers from BT rather than issue new numbers, as the latter can enjoy regulated conveyance. Again, this is inefficient as the provenance of a number should be irrelevant to how a CP chooses to compete;

(4)                Incentives for other CPs to interconnect deeper into BT's network to pull off traffic sooner and carry it on their own or third-party networks could be reduced. To the extent that ported and non-ported traffic remained intermixed, this incentive may be diluted; however, ported and non-ported traffic could in principle be split. In turn, this reduced the incentives for CPs to build infrastructure needed to interconnect more deeply with BT.

Section 7: Direct vs indirect routing

Dr Maldoom's Second Expert Report

Section 2: Key issues regarding LRIC versis LRIC+

(1)                an intensification of retail competition resulting from lowering APCCs;

(2)                sharper incentives to minimise costs under a pure LRIC standard than LRIC+; and

(3)                pure LRIC being aligned with a principle of cost causation, expressed as " costs should be recovered from those whose actions cause the costs to be incurred at the margin" in Ofcom's Defence.

" Retail competitive effects: It is common ground that retail competitive effects need to be considered. Ofcom's Defence and Mr Godfrey's report assert that there are significant competitive benefits. However, this is contrary to the position that Ofcom adopted in the Determination, where retail effects are considered small because of the modest impact of changing the cost standard on CPs' prices. Moreover, neither Ofcom, in its Defence, nor Mr Godfrey are sufficiently careful to maintain the distinction between the competitive benefits of enabling porting in general (which is not in issue and which has already been achieved) and the incremental benefits to competition that might result from lowering APPCs from LRIC+ to pure LRIC. Evidence on the conduct of the retail market presented in Ofcom's Communications Market Reviews is not supportive of Mr Godfrey's arguments as retail competition is already effective, limiting the scope for further improvement.

Distortion of transit and conveyance markets: Neither Ofcom's Defence nor Mr Godfrey's report significantly engage with the problem of distortions that could arise if porting conveyance are constrained to a price below that of broadly comparable general transit and conveyance services. My first report discussed the possibility of creating incentives for porting traffic being segregated to enjoy the benefits of a lower regulated price and knock-on effects dampening incentives for deeper interconnection with BT and migration from TDM to IP-based networks.

Incentives for direct routing: In both the Determination and the Guidance, Ofcom largely dismiss the question of incentives to migrate to direct routing, largely assuming that APCCs at LRIC would maintain sufficient incentive for migration. This is intertwined with the issue of the incentives to migrate to IP-based networks, as this change would facilitate direct routing."

(1)                in the Guidance Ofcom said (§ 7.3) " the total size of wholesale porting charges covered under GC18 is small in the context of retail revenues in both the fixed and mobile sectors" and that its proposal would have " a limited effect on consumers";

(2)                Mr Godfrey confused the competitive benefits of enabling porting with the incremental impact on retail competition of changing the cost standard; he accepts that the choice of cost standard is likely to be of secondary importance compared to the introduction of porting itself;

(3)                Dr Maldoom disputed Mr Godfrey's contention that voice services are significant in relation to competitive effects; in the 2015 Communications Market Report, Ofcom appeared to acknowledge that competitive outcomes are driven by competition for customers buying bundles; the retail fixed voice market is already sufficiently competitive that Ofcom has removed retail regulation on BT;

(4)                Ofcom has presented no evidence that the intensity of retail competition will be increased by moving to LRIC.

Section 3: General comments about the efficiency of LRIC

Whether it is unreasonable for BT to earn a margin on customers lost to BT

Section 4: Secondary issues related to LRIC vs LRIC+

Retail competitive effects

Comparative efficiency of LRIC and LRIC+

Erosion of economies of scale

Incentives to port numbers rather than issue new numbers

Reduction of incentives for CPs to interconnect deeper into BT's network

Incentives to move to direct routing

Dr Maldoom's re-examination

" I think one would want to look, as we discussed earlier, at the question of the incentives to attract customers from other CPs and what effect APCCs might have on that. In this regard, everything is not symmetric. So yes, there's obviously a question about taking a customer over from BT, but there are also questions about customers who might be moving amongst the other large CPs who are around two thirds of the market, something like that, who might be porting within those number ranges which might then in future be dealt with possibly under direct routing arrangements. So those are all things which need to be looked at separately.

We had this question about what are the effects on the incentives to acquire a customer, and I think as we heard earlier, then in a world in which a customer is buying a bundle of services, if we have a cost penalty which is associated with their incoming calls, we have to then think about materiality, about what other services they are buying and whether having a small cost penalty associated with their incoming calls, whether that can have any conceivable effect.

It may be that there are certain customers for whom that is significant, but then we have to ask, how many are there? How important are those to competition? We have to also ask about pricing and the extent to which prices generally, versus the segmentation of the market, if we think that there are particular groups that are particularly affected by porting charges.

Section 2: Summary of key economic principles and regulatory background

"(a) There are good reasons to minimise the costs faced by a CP when acquiring a customer who switches from and ports their number to another CP. First, lower switching costs facilitate the competitive process which benefits all customers and, second, there are wider benefits to callers, not just those that port their number;

(b) Porting charges below LRIC impose a loss on the DCP (and while in general external benefits could justify pricing below LRIC, certain costs associated with porting are explicitly non-recoverable already). However, it is not necessary for porting charges to be priced above LRIC (i.e. some form of LRIC+), because common costs can be recovered on other services (retail or wholesale) and in competitive markets a losing provider would not expect to be able to earn revenues (let alone contribute to common costs) when it loses a customer;

(c) In relation to the other principles of pricing and cost recovery considered relevant (i.e. cost causation and cost minimisation), LRIC was considered to perform slightly better;

(d) Therefore, LRIC strikes the appropriate balance between minimising charges for porting services, yet providing the opportunity for the DCP to avoid a loss on the chargeable porting services."

Section 3: Competitive market pricing and cost orientation

" 62. In my view, the range of prices set in unregulated inter-switch conveyance markets (even if these are competitive markets for traffic in general) is likely to be wide both in theory and in practice. Even if inter-switch conveyance prices were cost oriented in a general sense, I do not think they can be presumed to be appropriately cost oriented for the regulatory aim of minimising the costs of porting and switching between CPs."

" 67. Prices at LRIC+ can be interpreted as cost oriented if the "+" is no higher than necessary to recover total costs calculated across the relevant set of services sharing common costs.

68. However, for the reasons explained earlier, the appropriate form of cost orientation depends on the regulatory objectives in question. In the context of APCCs, I disagree with Dr Maldoom that the appropriate interpretation of cost orientation is LRIC+. I consider that LRIC represents the form of cost orientation most consistent with the regulatory aim underpinning the regulation of porting charges, including APCCs."

Section 6: Arguments regarding retail competition

Section 7: Arguments regarding wholesale competition

Mr Godfrey's cross-examination

The need for Ofcom to justify a departure from LRIC+

"Impact of wholesale charges at the retail level

166. As noted above, BT and Dr Maldoom argue that Ofcom acknowledged that the change in APCCs is small in the context of retail revenues and would be anticipated to have a limited impact on consumers. Dr Maldoom makes a further argument in his discussion of retail competition impacts that the balance of traffic arguments relevant to the assessment of termination markets would be of limited practical relevance only to the extent that ported traffic is imbalanced.

167. In response to BT and Dr Maldoom, I recognise that the overall impact on retail consumer bills is likely to be limited. However, I think it is important not to lose sight of what Ofcom was showing in section 7 of the Guidance, from which the excerpts relied on by BT and Dr Maldoom are taken (e.g. Guidance paragraph 7.12).

168. Section 7 of the Guidance presents a static impact assessment and shows that even if CPs sought to rebalance any lost wholesale revenues from reduced APCCs onto retail prices, the effect was likely to be small. However, the dynamic impact of changes in APCCs is more complex and depends on the profitability of customers who port their number to different CPs; the balance of ported traffic overall for each CP; and the retail price reaction of different CPs (including how they expect rivals to respond).

169. While I accept that the overall retail pricing effects are likely to be limited, I would expect this to be driven by the tendency of rivals to BT to absorb APCCs within their margins, whereas for BT, APCCs above LRIC clearly work to its advantage in proportion to the amount of net onward routed traffic it provides to rival CPs.

170. Using information gathered in preparation of the Guidance, I show below the net position of CPs in terms of ported traffic (Figure 7). [...]

172. On the above basis, I do not think that ported traffic is balanced to the point where we might conclude that it is irrelevant to competition (or at least the relative financial position) between CPs, contrary to what I understand Dr Maldoom to be arguing at paragraph 150 of his report.

173. As explained by Ofcom in the Guidance (paragraph 4.69) porting charges work to the disadvantage of entrant CPs (since they are more likely to acquire customers that wish to port their number - as evidenced in the traffic flows presented in Figure 7). This effect is exacerbated under LRIC+ in which APCCs make a contribution to common costs."

Distortions of wholesale competition

Direct routing

New entrants disproportionately affected by APCCs

Mr Godfrey's re-examination

"23. It is for an appellant to establish that Ofcom's decision was wrong on one or more of the grounds specified in s.192(6) of the 2003 Act: that the decision was based on an error of fact, or law, or both, or an erroneous exercise of discretion. It is for the appellant to marshal and adduce all the evidence and material on which it relies to show that Ofcom's original decision was wrong. Where, as in this case, the appellant contends that Ofcom ought to have adopted an alternative price control measure, then it is for that appellant to deploy all the evidence and material it considers will support that alternative.

24. The appeal is against the decision, not the reasons for the decision. It is not enough to identify some error in reasoning; the appeal can only succeed if the decision cannot stand in the light of that error. If it is to succeed, the appellant must vault two hurdles: first, it must demonstrate that the facts, reasoning or value judgments on which the ultimate decision is based are wrong, and second, it must show that its proposed alternative price control measure should be adopted by the Commwasion. If the Commission (or Tribunal in a matter unrelated to price control) concludes that the original decision can be supported on a basis other than that on which Ofcom relied, then the appellant will not have shown that the original decision is wrong and will fail.

25. Usually an appellant will succeed by demonstrating the flaws in the original decision and the merits of an alternative solution. But that is not necessarily so. I would not rule out the possibility that there could be a case where an appellant succeeds in so undermining the foundations of a decision that it cannot stand, without establishing what the alternative should be. In such a case, if there is no other basis for maintaining the decision, the Commission or Tribunal would be at liberty to conclude that the original decision was wrong but that it could not say what decision should be substituted. The Tribunal would then be required to allow the appeal under s.195(2) and direct Ofcom to make a fresh decision with such directions as the Tribunal thinks are necessary to reach a properly informed conclusion. The Tribunal may wish to specify the steps to be taken by Ofcom to make good any deficit in evidence and material so as to reach a fresh decision, or leave it to Ofcom to act as it sees fit in the light of the Commission's conclusion.

26. I would expect such an outcome to be rare [...] "

Quantitative analysis

Incentives to split traffic and arbitrage

Economies of scale

Incentives to use ported numbers rather than issue new numbers

Incentives to interconnect deeper into BT's network

Whether Ofcom addressed the effect of cost standard on incentives for direct routing

Effect of APCCs at LRIC on incentives for individual CPs to agree direct routing with other CPs