Out-Law News | 11 Jul 2014 | 10:34 am | 2 min. read
The decision by the Supreme Court reinstates the findings of the Competition Appeal Tribunal (CAT), which had overturned Ofcom's decision on appeal from BT. Four mobile networks that will now be subject to the new charging regime had challenged BT's proposals under Ofcom's statutory dispute resolution procedure. In its determination, Ofcom had said that the proposed changes were not "fair and reasonable" for a number of reasons, including their potential affect on consumer bills.
In a unanimous judgment, the Supreme Court said that Ofcom had applied the wrong test when ruling on whether BT was entitled to vary the charges under its interconnection agreements with the mobile networks. Ofcom's function was only to decide whether BT had "exceeded the limits of its contractual discretion", and it could not reject the proposed changes simply because they "might" have adverse consequences for consumers, it said.
"In my opinion, it is not consistent with either the contract or [EU law] for Ofcom to reject charges simply because they might have adverse consequences for consumers, in the absence of any reason to think that they would," said Lord Sumption in his leading judgment.
"It is not consistent with the contract because it prevents BT from exercising its discretion to alter its charges in circumstances where there is no reason to suppose, and Ofcom has not found, that the limits of that discretion has been exceeded. It is inconsistent with [EU law] because it involves applying an extreme form of the precautionary principle to a dynamic and competitive market, in a manner which is at odds with the Directives' market-orientated and essentially permissive approach," he said.
BT is entitled to charge mobile network operators for connecting calls from their networks to BT fixed lines with associated non-geographic numbers beginning with '08'. In 2009, it told the networks that it was planning to change the way that these 'termination charges' are calculated. It proposed that, in future, mobile network operators would be charged at a rate which varied according to the cost to the consumer of dialling that number from their mobile. The higher the charges to the caller, the more BT would charge the operator under the revised scheme.
The proposals were referred to Ofcom by four operators: Telefonica O2, EE, Vodafone and Hutcheson 3G. Under the statutory dispute resolution procedure, a decision of Ofcom can be appealed to the CAT. In its original determination, Ofcom said that any proposed changes would have to be "fair and reasonable" before BT would be allowed to proceed. It found that the proposals did not meet its criteria because they were "not sufficiently likely" to provide benefits to consumers; which it referred to as the 'welfare test'.
On appeal, the CAT took BT's 'prima facie' contractual right to vary its charges, subject to Ofcom's determination if referred for dispute resolution, as its starting point. This being the case, it said that Ofcom could only reject a proposed change if the welfare test "distinctly showed" that it would adversely affect consumer welfare. As Ofcom had done, the CAT found that the application of the welfare test was inconclusive.
In the Supreme Court, Lord Sumption said that it had been "wrong in principle" for Ofcom and then the Court of Appeal to reject BT's changes on the "sole basis" that the welfare test was inconclusive" for "substantially the reasons given by the CAT".
"BT were contractually entitled to vary their charges unless the proposed variations were inconsistent with [its regulatory objectives], including the objective of ensuring consumer benefit," he said.
"Ofcom have not found that they were inconsistent with these objectives. They have found that they would produce direct and indirect consumer benefits of unquantifiable value, and that these benefits might or might not be exceeded by disbenefits arising from the attempts of mobile network operators to increase revenue in other directions. The latter factor was found by the CAT to be 'essentially unknown'," he said.