Ofcom closes its margin squeeze investigation of BT in relation to wholesale calls with a "no grounds for action" decision

On June 20, 2013 Ofcom closed its long-running investigation of BT’s pricing of its Wholesale Calls product with a “no grounds for action” decision. The investigation, which commenced in August 2008, focused on allegations of margin squeeze made by THUS plc and Gamma, two competitors to BT in the supply of wholesale calls that rely on BT for upstream inputs (call origination services in particular) provided over BT’s copper access network.
Ofcom found that BT had earned negative margins on its Wholesale Calls product over a period of ten months between July 2008 and April 2009. However, Ofcom concluded that the evidence on actual or potential anti-competitive effects was insufficient for Ofcom to find that BT had infringed competition law.
Ofcom’s decision is welcome for the distinction it draws between a technical margin squeeze (i.e. a finding that downstream costs exceed the difference between upstream and downstream prices) and an abuse of competition law. The decision helpfully illustrates that an abuse finding requires evidence of actual or potential anti-competitive effects and that negative margins, however calculated, are not sufficient on their own. Ofcom should also be applauded for its careful assessment of effects, which sets a standard for other authorities to follow when investigating matters under Article 102 or national equivalents. Ofcom’s decision can be found here.
A CRA team led by Mike Walker and Geoff Edwards, and including Rameet Sangha and Valter Sorana, advised BT from an early stage in the investigation and submitted a number of reports to Ofcom including evidence and arguments demonstrating the absence of any actual or potential anti-competitive effects and reviews of the financial modelling performed by BT and Ofcom. Much of our effects arguments and modelling work were adopted in the Ofcom decision.