Hutchison 3G UK Ltd v The Office of Communications & Anor

This appeal is brought from the Competition Appeal Tribunal, with its permission, and concerns the regulation of the mobile telecommunications sector. Five mobile network operators exist in the UK, of which the Appellant Hutchison 3G UK Ltd (H3G) is the most recent entrant to the market and has the smallest body of customers. The five operate in an extremely competitive way as against each other, not least because of having invested very large sums of money in securing the ability to offer third generation communication facilities. Each operator, however, has a monopoly within its own network, and for each of them there is one very large undertaking with whom they have to deal, namely BT. Each mobile network operator (MNO) sells to other MNOs and to fixed network operators the service of connecting phone calls to its network. That is called mobile call termination (MCT). It is one of the many aspects of the operations of the telecommunications sector which is subject to regulation in the UK in a way which is prescribed by European legislation. The EU legislation is referred to as the Common Regulatory Framework (CRF), and consists of a group of Directives of which three are particularly relevant for present purposes. They are implemented in the UK by the Communications Act 2003, and the national regulatory authority is the Office of Communications (Ofcom), the respondent to this appeal.

The principal issue in this appeal is whether H3G has significant market power (SMP) in the market for MCT on its network. It is the only seller in that market, and BT is overwhelmingly the largest buyer. In a market where there is one buyer and one seller, it does not necessarily follow that the seller has SMP, because the buyer may have sufficient countervailing buyer power (CBP) to balance the seller’s monopoly. The possession of SMP is defined in the CRF as the power to behave to an appreciable extent independently of competitors, customers and ultimately consumers. It is equivalent to the concept of dominant position, for the purposes of article 82 of the EU Treaty and section 18 of the Competition Act 1998.

BT might well be regarded as having SMP in markets where it is a supplier, having regard (among other things) to the size of its customer base, and its ownership of much of the infrastructure. It is itself constrained in several relevant respects, including by an obligation to allow other network operators to interconnect with it, on reasonable terms, known as end-to-end connectivity (E2E). Its important position in relation to relevant markets derives not only from its own large customer base, but also from the fact that other operators are able to send calls from their networks via that of BT, under transit arrangements, for an appropriate charge.

One of Ofcom’s obligations under the CRF is to analyse telecommunications markets in the UK to see whether they are “effectively competitive”. If they are not, Ofcom must identify undertakings which have SMP on a given market, and must then consider imposing, or amending, regulatory conditions (SMP conditions) on such undertakings. In certain circumstances these conditions may include price controls.

Another of Ofcom’s functions which has to be considered in this appeal is the resolution of disputes. The distinction between Ofcom’s market review powers and their functions in resolving disputes is significant, and corresponds with a wider distinction between different types of provision for regulatory intervention. One, of which the market review powers is an example, is referred to as “ex ante”, and empowers the regulator to lay down in advance the conditions under which one or more undertakings are to operate on a market. The other type is called “ex post”, and in some cases involves action by way of sanction for prior breaches of obligations. Action under articles 81 and 82 of the EC Treaty or, in the domestic context, sections 2 and 18 of the Competition Act 1998 is an example. Ofcom’s role in the resolution of disputes is also treated as a power of this kind, even though as between the parties the determination of the dispute may lay down the position for the future as well as for the past.

In 2004 Ofcom investigated the MCT market and concluded that H3G had SMP on its network as regards termination of voice calls. Because H3G’s operations (which had started in 2003) were on a small scale, it did not impose price controls at that stage. H3G nevertheless appealed against the finding, to the CAT. The Tribunal allowed H3G’s appeal and remitted the matter to Ofcom. In 2007, Ofcom reconsidered the question of H3G’s market power as at 2004, and came to the same conclusion. At the same time they also investigated the position for 2007 to 2011. They concluded that H3G (as did all other MNOs on their respective networks) had SMP on the market for MCT on its own network, and this time they did impose price controls on H3G, as they had for the other operators previously and did again on this occasion. H3G appealed against the findings of SMP as at 2004 and 2007. BT and H3G appealed against the levels of price allowed for MCT. The price control aspect of the appeal was referred to the Competition Commission, under section 193 of the Communications Act 2003.

There were also appeals against separate rulings by Ofcom on disputes between BT and various operators, and also between H3G and, respectively, Orange and O2, as to the rates payable for termination; these were known as the Termination Rate Disputes (TRD). Because these did not arise on the exercise of Ofcom’s SMP powers, section 193 did not apply and the appeal lay to the Tribunal without further reference to the Competition Commission. The Tribunal dismissed H3G’s appeal, and dealt separately with TRD, but it decided on certain core issues in the TRD appeals at the same time as, and following a conjoined hearing with, H3G’s MCT appeal. It has been necessary to consider Ofcom’s determination in 2004 and each of their determinations in 2007 (the MCT Statement, as regards the position from 2007 to 2011, and the Reassessment Statement as regards H3G’s position in 2004), the judgment of the Tribunal in 2005 on H3G’s first appeal (H3G1), [2005] CAT 39, and its TRD Core Issues judgment, [2008] CAT 19, in addition to that from which this appeal is brought, (H3G2), [2008] CAT 11. This complicated procedural history has led to a large quantity of paper being generated, through which Counsel have sought to guide us, illustrating and supporting their submissions by reference to yet more paper, much of it emanating from the European Commission.

Before the Tribunal on H3G2, there appeared not only H3G as appellant and Ofcom as respondent, but also BT and all the four other MNOs (O2, Vodafone, Orange and T-Mobile) as interveners. On this appeal, BT and T-Mobile took part as interveners, as well as the Appellant and the Respondent. We had the benefit of written arguments which were by no means skeletal, and full and concentrated oral submissions of a very high quality from Counsel for all four parties. None of this made it easier to determine the issues on this important appeal, other than by feeling that, however the parties’ positions have developed in the course of the prolonged forensic process from Ofcom’s first determination in 2004 to the present appeal, we can be reasonably sure that no material point has been overlooked.

I regret very much that it has taken so long for this judgment to be prepared – even longer than the four months which are laid down as the period within which national regulatory authorities are supposed to complete their process of dispute resolution (see article 20.1 of the Framework Directive, referred to below, and section 188 of the Communications Act 2003). The combination of the substance and power of the respective submissions made to us, and the quantity of documentation supplied and used in connection with the appeal, on the one hand, and the demands of other substantial appeals, on the other, made this a much more protracted task than I would have wished.

This judgment will be found to be strewn with acronyms, without which it would have taken up even more paper. There is a glossary at the end.

It is necessary to consider a good deal of the legislation, and I will turn to this without further introduction.

The relevant European Directives are the Framework Directive, 2002/21/EC, the Access Directive 2002/19/EC and the Authorisation Directive, 2002/20/EC.

The starting place is the Framework Directive. Its many recitals include two concerned with the need for ex ante regulation, (25) and (27), as follows:

Recital (28) says that national regulatory authorities must act in accordance with Community law and “take into the utmost account” the guidelines laid down by the Commission as envisaged in recital (27). In turn, recital (32) refers to the function of resolving disputes:

Article 1.1 sets out the scope and aim of the Framework Directive:

The Directive proceeds to deal with the role of national regulatory authorities, including rights of appeal against the decisions of such authorities, and a requirement for such authorities to provide the opportunity for comment on proposed measures, both to interested parties and to the Commission and other national regulatory authorities. Under article 7, the Commission has the power to veto such a draft measure. Article 8 sets out policy objectives which are to guide the actions of the national regulatory authorities. I do not need to quote all of these objectives, since not all are relevant to the present case. The main relevant objectives are those mentioned in article 8.2:

I have mentioned that this Directive defines the circumstances in which an undertaking is to be regarded as having significant market power. This is in article 14.2:

The Directive then deals with market definition (article 15) and market analysis (article 16). The Commission is to adopt a recommendation on relevant product and service markets, identifying “markets within the electronic communications sector, the characteristics of which may be such as to justify the imposition of regulatory obligations set out in the Specific Directives”. The definition is to be in accordance with the principles of competition law, and is without prejudice to the markets which may be defined in specific cases for the purposes of competition law. Among the markets listed in Annex 1, which had been defined under the previous regulatory framework, and to be reviewed, was the market for call termination on public mobile telephone networks. The Commission is also to publish guidelines for market analysis and for the assessment of SMP. National regulatory authorities, taking utmost account of the recommendation and guidelines, are to define relevant markets appropriate to national circumstances. Under article 16, they are also to carry out an analysis of the relevant markets, and to determine on the basis of its market analysis whether a relevant market is effectively competitive. Under article 16.4:

Article 20 contains the substantive provisions of the Directive dealing with the resolution of disputes between undertakings:

The Commission’s recommendations on relevant markets were first published in February 2003. At that stage voice call termination on individual mobile networks was identified as item 16 in the list of markets. The recommendation was reviewed in 2007; by then it had become item 7, the last in a much shorter list.

The Access Directive deals with the need, in some circumstances, to ensure that undertakings are able to have access to and interconnection with each other’s networks. Two recitals merit quotation in this context:

The article which deals with end-to-end connectivity is article 5, the relevant parts of which are as follows:

In turn article 8 deals with the imposition of SMP conditions:

Price control conditions are among those authorised by article 13:

The relevant provisions were transposed into UK law by the Communications Act 2003. Having set out fairly fully the important provisions of the Directives, I do not need to quote all the relevant provisions of the Act.

Section 3 imposes on Ofcom the principal duty “in carrying out their functions to further the interests of citizens in relation to communications matters; and to further the interests of consumers in relevant markets, where appropriate by promoting competition”. It also requires them to have regard, in all cases to:

Section 4 requires them, in carrying out functions relevant for present purposes, to act in accordance with what are called the six Community requirements, namely those mentioned in article 8 of the Framework Directive. The most important of those, for present purposes, are:

a requirement to promote competition in relation to the provision of electronic communications networks and electronic communications services: section 4(3)(a); and

a requirement to encourage the provision of network access and service interoperability, to such extent as OFCOM consider appropriate for the purpose of securing (a) efficiency and sustainable competition in the markets for electronic communications networks, electronic communications services and associated facilities; and (b) the maximum benefit for the persons who are customers of communications providers and of persons who make such facilities available: section 4(7) and (8).

Section 45 gives Ofcom the power to impose conditions on undertakings, including access-related conditions and SMP conditions. The persons to whom these conditions may be applied are identified in section 46. For SMP conditions, the person must be a communications provider or a person who makes associated facilities available, and must be (relevantly) someone whom OFCOM have determined to be a person having significant market power in a specific market for electronic communications networks, electronic communications services or associated facilities: section 46(7) and (8). No condition may be set unless it satisfies the test that it is (a) objectively justifiable in relation to the networks, services, facilities, apparatus or directories to which it relates; (b) not such as to discriminate unduly against particular persons or against a particular description of persons; (c) proportionate to what the condition or modification is intended to achieve; and (d) in relation to what it is intended to achieve, transparent: section 47.

Access-related conditions are governed by the more specific provisions of sections 73 and 74, which include particular provisions about securing end-to-end connectivity. The E2E obligation was imposed on BT under these provisions.

SMP conditions are dealt with by sections 78 and following. A person is to be taken as having SMP in relation to a market if he enjoys a position which amounts to or is equivalent to dominance of the market, and dominance of a market is to be construed in accordance with applicable provisions of the Framework Directive: section 78(1) and (2). Where Ofcom have determined that a person has SMP in a relevant market, they are to set such SMP conditions authorised by section 87 as they consider it appropriate to apply to that person in respect of the relevant network or relevant facilities; and apply those conditions to that person: section 87(1). By section 87(9) the SMP conditions authorised by this section include conditions imposing on the provider who has SMP price controls in relation to matters connected with the provision of network access to the relevant network, subject to section 88 being satisfied. The relevant provisions of that section are as follows:

Consistently with article 15 of the Framework Directive, section 79(2) of the Act requires Ofcom to take due account of all applicable guidelines and recommendations issued or made by the Commission in pursuance of a Community instrument which relate to market identification and analysis, when identifying or analysing relevant markets, and section 79(3) makes similar provision as regards market analysis or the determination of what constitutes SMP, when Ofcom consider whether to make or revise a market power determination. Correspondingly, on appeals from Ofcom, the Tribunal and in turn the court must do likewise.

The Act contains provisions under which Ofcom can resolve disputes, of which section 185 is the first to require attention.

Section 188 deals with how Ofcom must go about resolving a dispute under these provisions. By sub-section (5), except in exceptional circumstances, Ofcom must make their determination within no more than four months, and by (6) if they can do so within the four month period, they must do so as soon as practicable.

What Ofcom can do by way of the resolution of a dispute is governed by section 190:

We were also referred to section 105 which gives Ofcom a power to intervene of their own initiative:

Much attention was given in the course of the case to BT’s E2E obligation. As it now stands, it was imposed by Ofcom on 13 September 2006 under section 73 of the Act. The access condition imposed on BT is, relevantly, in the following terms:

These conditions replaced guidance published by Ofcom’s regulatory predecessor, Oftel, in 2003, but, so far as concerns the issues before us, it seems to be common ground that, in effect, BT was subject to a similar obligation before September 2006 as well.

An appeal lies from Ofcom to the Tribunal under section 192 of the Act, on grounds of fact or of law: see section 192(6). A further appeal to this court lies only on a point of law: section 196(2)(b). As I have mentioned, one of the issues before us, namely whether H3G had SMP in the first relevant period, has been the subject of a decision by Ofcom which was set aside on appeal to the Tribunal, and then of another decision by Ofcom which was upheld by the Tribunal in the decision now under appeal. Understandably, we were shown some of the reasoning of Ofcom and of the Tribunal at both these stages, as well as in the TRD Core Issues judgment of the Tribunal. It would be possible to get drawn into a comparison of what was said at different levels and at different stages of this process. I intend to avoid that temptation. So far as facts are concerned, what matters is what Ofcom found in 2007 (which was not materially affected by the appeal to the Tribunal in H3G2). As for the law, we are not bound by any view expressed by Ofcom or the Tribunal, at any stage of the processes which I have described.

H3G appeals on three separate grounds.

The first turns on the E2E obligation, under which (taken together, if necessary, with the determination of a dispute by Ofcom), it is said, BT could not lawfully be required to pay a price appreciably above the competitive level, so that H3G is not able to act independently of BT and does not have SMP.

The second is that the Tribunal was wrong to hold that Ofcom’s dispute resolution powers should be disregarded when considering whether H3G had SMP.

The third is that the Tribunal was wrong to hold that Ofcom could impose a price condition, because there was no risk that H3G might set an excessively high price for MCT and require BT to pay it under the E2E obligation.

For H3G, Miss Rose Q.C. argued that, since the question whether H3G has SMP depends on the extent to which BT has CBP as regards MCT on H3G’s market, it follows that the point on which the issue of H3G’s ability, or otherwise, to act independently of its customers depends, in turn, on the terms on which business would be done between BT and H3G in this respect. That involves considering H3G’s need for a deal with BT, as well as any need that BT has to do a deal with H3G, and it also involves considering what the constraints are on either party. She said that for H3G, it was an absolute prerequisite to persuade BT to buy MCT from it, since otherwise it would get no business. There was some debate about whether it was also important for BT to buy MCT from H3G, as to which the position could have been different at different dates. Her submission was that there was no adequate evidence to show a commercial constraint of that kind on BT.

The potential dependency of a new or small operator on an undertaking such as BT is one of the reasons why the E2E obligation was provided for and imposed. But for that obligation, Miss Rose argued, BT would have no sufficient incentive to buy MCT from H3G, or not until H3G had become a great deal bigger and more important, so it would have more than enough market power to counteract any ability of H3G to exploit its monopoly position in its own market. However, she went on, the E2E obligation is not unqualified, and only obliges BT to buy on reasonable terms. In the event of a dispute as to whether the terms demanded by H3G, or those offered by BT, are reasonable, Ofcom would have to resolve the dispute under section 185. That is why the scope of Ofcom’s dispute resolution powers is relevant to the case. Miss Rose submitted that, if it is right to take into account the fact that BT cannot just walk away, because of the E2E obligation, it must also be necessary to take into account what BT can be required to do, namely to buy MCT at reasonable rates and on reasonable terms. By the same token, it must follow that H3G cannot charge more than reasonable rates to BT for MCT. If so, she asked, where is H3G’s ability to act independently of its customers? All it can do is charge BT (and therefore any other such customers) reasonable rates for the service. That does not suggest that H3G has SMP.

There is an issue as to whether, at the relevant times, BT was under a commercial constraint to interconnect with H3G, to protect its own business interests. But leaving that aside, there is an issue of principle as to the relevance of the E2E obligation, and of Ofcom’s dispute resolution power. If E2E were ignored altogether then, apart from any commercial constraint, BT would have the ultimate buyer power of being able to walk away and refuse to deal. In that case, Miss Rose submits, H3G plainly would not have SMP, because no-one could be made to deal with it. If E2E, backed up by dispute resolution, is to be brought into account, that question is to what extent and with what effect. Mr Roth Q.C. for Ofcom argues that, if they are taken into account so as to prove that H3G cannot insist on interconnection at other than a reasonable price, and if that is enough to get rid of any risk that H3G has SMP, then the likelihood is that no MNO could be found to have SMP, and that no market assessment under these provisions could ever come to the conclusion that a party in the position of the MNOs had SMP.

In the light of these contentions, one of the central issues in the case involves a consideration of the relevance to an assessment of SMP of regulatory constraints on the relevant undertakings. For Ofcom it is said that H3G’s propositions would deprive the regulatory framework of much of its effect, because the proposition that H3G does not have SMP depends on relying on regulatory factors which would be present in all cases. H3G denies that contention, but accepts that it is necessary to take a view as to which regulatory provisions are to be taken into account in assessing market power and, if so, how.

So far as we were shown there is no decided case in which this issue has had to be addressed (other than one in the Bundesverwaltungsgericht, in Germany, to which I will refer at paragraph 52 below), but it features in a decision of the Commission in relation to call termination in Germany, in fact on landlines rather than mobile phones, but the principles are the same. This is decision DE/2005/0144, under the Framework Directive, which was referred to as RegTP. In Germany there was one operator in a dominant position in the market generally, Deutsche Telekom (DT), and 53 smaller alternative network operators (ANOs), each of which had a monopoly of call termination on its own network. The German Telecommunications Regulatory Authority, known for short as RegTP, assessed the markets and concluded that the 53 ANOs did not have SMP on their own markets. As required by article 7 of the Framework Directive, it submitted this proposed assessment to the Commission. In the published decision, the Commission gives its reasons for deciding that this assessment was not compatible with Community law, and prohibiting RegTP from proceeding with it. RegTP had come to the view that DT had sufficient CBP to negate any SMP on the part of the ANOs.

Because this is the only decision from the Commission on the point, and because it is closely analogous to the present case, I think it appropriate to quote fairly fully from the decision. At paragraphs (10) to (14) the Commission explained the basis of the proposal by RegTP, and the way it was said to be justified under either of two versions of the Greenfield approach, before going on to examine that approach in detail:

At paragraph (17), the Commission set out its approach in general terms, and said that it did not accept the finding that ANOs did not have SMP:

Then the Commission examined the ways in which RegTP sought to justify its finding, dealing first with the strict Greenfield approach. This seems to be discredited, but it is useful to see how it was formulated and addressed.

It is fair to say that the Commission also observed that DT had commercial as well as regulatory reasons for buying termination services from the ANOs, as it explained at paragraphs (26) to (30), so that both regulatory and commercial factors ruled out reliance on the strict Greenfield approach:

Then the Commission turned to deal with the modified Greenfield approach, which is that now relied on. The issue on H3G’s appeal is what regulatory constraints should, and which should not, be taken into account. That was also an issue in the RegTP case. The discussion is at paragraphs (31) to (38).

Thus the Commission considered that it was correct to take into account the fact that DT must interconnect with the ANOs (whether for regulatory or for commercial reasons) and therefore could not exercise buyer power by refusing to deal. It rejected (though without giving separate reasons for this) RegTP’s contention, recorded at paragraph (14), that because the obligation to interconnect only required DT to buy termination services on reasonable conditions, it could therefore resist any unreasonable demands by an ANO, thereby limiting the ability of an ANO to behave independently of its customers, which is one of the main points relied on by H3G. Although the Commission did not address that argument in terms, it was not persuaded by it, and at paragraph (34) it recorded that the constraint on the ability of ANOs to set call termination charges had in practice been the ex ante regulation imposed by RegTP itself.

On the basis of that decision, the Commission required RegTP to withdraw the proposed measures. By the time a new proposed measure was notified, the relevant German regulatory authority had changed to the Federal Network Agency (BNetzA for short), and the proposal which it put forward designated all the ANOs as having SMP on the market for call termination on their respective networks. In those circumstances, the Commission did not intervene, and the designation proceeded. It is unnecessary to refer to any details of the published decision.

We were also shown a decision of the German Federal Administrative Court dated 2 April 2008, on an appeal by a mobile network operator against a decision by BNetzA that the operator had SMP on its network, and imposing various regulatory constraints on it. The court held to be valid the approach of the regulator to the identification of SMP, primarily by reference to the existence and extent of CBP on the part of, above all, DT. The court referred to the RegTP decision, and said that, on the basis of that decision, BNetzA had concluded correctly that:

As the Commission said in paragraph (23) of the RegTP decision, the point of the modified Greenfield approach is to avoid circularity in relation to a market assessment as regards SMP. SMP is not to be found to be absent from a market if its absence is the result of regulation which is in place. Correspondingly, looking forward, an undertaking which would otherwise have SMP is not to be entitled to argue that it does not have it because its freedom of operation is or would be limited (directly or indirectly) by regulatory provisions such as are designed to be put in place in order to constrain the exercise of SMP. Whether a market is “effectively competitive” must be assessed regardless of the regulatory constraints that might be imposed if it is found that it is not. Otherwise the regulatory regime would in this respect be self-defeating.

Miss Rose did not argue for all regulatory provisions to be ignored, but did point out that, if BT’s E2E obligation were not brought into account, then there would, apparently, be nothing that would constrain BT from refusing to deal with H3G, unless it were shown that BT could not afford not to do so for commercial reasons. She submitted that no such commercial constraints existed in 2004 or in 2007, so that the finding of SMP had to be justified by reference to regulatory constraints on BT.

If, however, the E2E obligation is to be taken into account, she argued, it must be seen as a whole, including the feature that BT could only be required to interconnect on reasonable conditions. Conversely, therefore, it was not open to H3G to put forward whatever conditions it liked and to require BT to buy MCT services on that basis. Accordingly, she submitted, H3G was not free to act independently of its customers, and therefore did not have SMP.

As I have said, the reasoning of RegTP in declining to assess the ANOs as having SMP included a proposition similar to that advanced by Miss Rose, that H3G was not free to act independently of its customers – particularly BT – because BT could refuse to interconnect except on reasonable terms. The Commission ruled that this was not correct. Since the requirement on an operator in the position of BT to interconnect is based on article 5 of the Access Directive, and the obligation must be proportionate (hence it cannot be imposed so as to require connection otherwise than on reasonable terms), it would otherwise be an answer to an assessment of SMP on any undertaking in the position of the ANOs in the RegTP case, or of H3G in the present case. It is clear that, if H3G’s argument is correct, it is, at the very least, highly likely to apply to all the other four MNOs in the UK market, as well as to MNOs in the market in other countries in the EU.

The debate about this aspect of the regulatory regime extended beyond the E2E obligation to Ofcom’s dispute resolution powers, in section 185 of the Act, derived from article 20 of the Framework Directive. It is clear from paragraph 3 of the article, and from section 4(1)(c) of the Act, that the process of resolving a dispute is part of Ofcom’s regulatory functions. Ofcom must, in resolving a dispute, act in accordance with the relevant Community requirements, derived from article 8 of the Framework Directive. In particular, of course, it must promote competition.

The Tribunal recognised this characteristic of Ofcom’s dispute resolution powers. At paragraph 107 of H3G2 it said:

Then the Tribunal considered the arguments as to whether, on that footing, the effects of the dispute resolution power should be ignored under the modified Greenfield approach, reviewing RegTP for that purpose. At paragraph 122 the Tribunal said that the dispute resolution powers should be ignored.

The reference in the fourth sentence of that paragraph to the price which Ofcom would be required to set is to the part of the Tribunal’s judgment which H3G challenges under the first of its grounds of appeal. However, even if H3G’s point on that were accepted, so that Ofcom could not properly set a price which is above the competitive level under their dispute resolution powers, the point made in paragraph 122 would not be affected. The essence of the point is made in the last sentence. The possibility or probability of ex post regulation (such as fixing a reasonable price by dispute resolution) may in fact operate as a constraint on the freedom of an undertaking which has a large market share, but it is not relevant to a decision as to whether that undertaking has SMP.

A question as to how an undertaking would operate on a market cannot be answered, in this context, by saying that it would behave in a way that would comply with the regulatory controls that might be imposed on it if it did not. That would result in a regulatory system being self-defeating. Its existence would mean that the mischief which it exists to deal with would be found not to be present because of the very existence of the system, thereby negating, in theory, the conditions for the application of regulatory control but leaving it open to the undertaking, in practice, to operate (for a time at least) uncontrolled by regulation.

Miss Rose argued that, as enunciated in RegTP at paragraph (22), the modified Greenfield approach does not require or permit to be ignored any regulatory obligations that exist independently of an SMP finding on the market in question, nor obligations flowing from existing regulation other than that which is imposed on the basis of SMP status on the market in question. She went on to submit that, on that basis, the dispute resolution power and its possible effects on the relevant undertakings cannot be ignored, because it exists entirely independent of a finding of SMP. Disputes can be resolved between undertakings neither of which has SMP, and such disputes are not, of course, limited to those arising between parties, one of which is subject to an E2E obligation. Therefore, she argued, the dispute resolution provision and its consequences are “regulatory obligations that exist independently of an SMP finding on the market under consideration”, which have to be taken into account because of what was said in paragraph (22) of RegTP.

She also submitted that Ofcom’s dispute resolution powers were relevant to the extent of BT’s CBP, not to whether H3G had SMP, and therefore they should not be ignored. However, in practice, these two issues are the two sides of the same coin: if BT’s CBP is constrained, then H3G’s market power is not. The fact that dispute resolution may be of assistance to a party which does not have significant CBP is irrelevant to the present case.

As it seems to me, one of the critical aspects of the modified Greenfield approach is that it requires that a feature of the regulatory regime be ignored, in a market assessment as to whether an undertaking has SMP or not, if otherwise it would itself provide the answer to the question whether the undertaking does or does not have SMP. That is the basis of what the Commission said at paragraph (23) of RegTP. In that part of the decision, the Commission was addressing the strict Greenfield approach, and in particular the proposition that even the E2E obligation should be ignored, leaving DT (or BT in the present case) free to refuse to deal with the ANOs (or the MNOs in this case) and thus with untrammelled CBP. These passages do not provide Miss Rose with any support for her argument that the limitation on BT’s E2E obligation, by which it can only be required to connect on reasonable terms, shows that BT does have adequate CBP, and therefore H3G does not have SMP. If that had been a valid point, it would have produced the opposite result in RegTP when the Commission came to examine the modified Greenfield approach, later in its decision.

Miss Rose might respond to the effect that the Tribunal’s approach, set out in paragraph 122 of H3G2, proves too much, and that network operators, which intrinsically have the whole of the market for call termination on their own networks, would always have SMP. On the contrary, she could say, what the Commission said at paragraph (33) of RegTP shows that this is not always the case, and that it will depend on the particular facts, not on legal presumptions. As to that, for an undertaking to have a 100% position on a market raises a strong presumption of SMP. That presumption can be rebutted, but only on the basis of facts as regards the commercial context which show that potential buyers of the call termination service are in truth free to act in a way which counteracts the SMP that the network operator would otherwise have. On the facts of RegTP it was not negated by the fact that, although DT could be required to interconnect and to buy call termination services from the ANOs, it could not be forced to do so except on reasonable terms. If that factor did not save the ANOs from a finding of SMP, as it did not, I do not see how the same factor can save H3G from such a finding.

A regulatory provision which, if used, would have an effect on the freedom of an operator to act independently of its customers cannot be allowed to provide an a priori answer to the question whether that operator does or does not have SMP. It does not seem to me to matter whether the provision is one which affects, directly, the operator in question or a third party dealing with it, such as BT in the present case, the extent of whose CBP is in issue and would affect the operator’s freedom in relation to its customers. Accordingly it does not seem to me helpful or relevant to consider whether the dispute resolution powers are to be seen, in this context, as affecting BT or H3G or both. Either way, in the present situation, if it were taken into account in the way Miss Rose submitted is correct, it would provide an automatic answer to the question, and would not allow a finding of SMP in any such case. That cannot be a correct application of the legislation.

Miss Rose’s submission, based on paragraph (22) of RegTP, that dispute resolution cannot be ignored because it is a regulatory obligation that exists independently of an SMP finding on the market in question, is fairly made, so far as the express reasoning of the Commission is concerned, but it ignores that fact that, in that decision itself, the Commission did not accept the very features on which Miss Rose relies as constraining the freedom of the ANOs to act independently of their customers. I prefer to rely on the actual decision, on its facts, which are closely analogous with the present case, regardless of what might be deduced from one or another phrase or sentence in the expression of the Commission’s reasoning.

As is said in recital (27) to the Framework Directive, ex ante regulatory obligations are only to be imposed “where there is not effective competition, i.e. in markets where there are one or more undertakings with significant market power, and where national and Community competition law remedies are not sufficient to address the problem”. If the existence of the national regulatory authority’s dispute resolution power, together with the feature of the E2E obligation that (because of the need for proportionality) BT cannot be required to buy MCT otherwise than on reasonable terms, were “sufficient to address the problem”, which is in essence what Miss Rose submits, the conditions for the imposition of ex ante regulatory obligations in this kind of case could never be satisfied.

As I have mentioned, we had conflicting submissions as to whether BT was under commercial constraints which limited its CBP vis-à-vis H3G. Such constraints on Deutsche Telekom were mentioned in the Commission’s decision RegTP. I can deal with this briefly. In Ofcom’s MCT statement in 2007, the point was addressed at paragraphs 5.135 to 5.147. For reasons identified at paragraphs 5.141-2 and others given at paragraphs 5.144 and 5.146-7, there were several factors (including those mentioned at paragraphs (27) and (28) of the RegTP decision) which gave BT “a significant commercial imperative” to provide its “subscribers with the opportunity to call each of the mobile networks”, and that even when H3G was a newcomer in the market in 2002 BT “judged that it had a commercial incentive to purchase call termination services from H3G”: paragraph 5.142.

Miss Rose argued that this could not stand with evidence put in by H3G, to which Ofcom refer at paragraphs 5.163 to 5.168 of the MCT Statement, consisting of a paper by an expert, Dr David Harbord, and an article by him and Professor Ken Binmore published in the Journal of Competition Law and Economics in 2005. She argued that Ofcom only disregarded their conclusion on the basis of an erroneous view of what the outcome of dispute resolution might be (that is to say, the issue on the first ground of appeal) and pointed out, at paragraph 5.166 of the MCT Statement, the comment that if the assumptions of the two experts were correct, it was probable that the outcome of the negotiation between BT and H3G would be that charges would be set either based on the average 2G rates (i.e. those charged by the other MNOs) or based on H3G’s costs. It does not seem to me that Miss Rose’s submission is correct, because at paragraph 5.167, referring back to paragraph 4.45, Ofcom record that the charges currently made by H3G “are significantly above Ofcom’s view of the appropriate cost-based charges for MCT”. Corresponding comments appear in Ofcom’s reassessment of the position as it was in 2004, published at the same time.

The Tribunal referred to this subject, and some of this material, at paragraphs 55 to 57 of H3G2. More could be said about this point, but since it is not critical to the outcome of the case, as I see it, I do not intend to say more than that, for these reasons, it seems to me that Ofcom’s view that BT was under strong commercial pressure, even in 2004, to buy MCT from H3G, was soundly based and provides an additional justification for the conclusion, reached by Ofcom and upheld by the Tribunal, that BT did not have so much CBP as to counteract the SMP which H3G, as a monopolist, would have, prima facie, on its own market.

A separate issue, which only arises if the dispute resolution power does have to be brought into account, is whether it would necessarily result in the charge for MCT being fixed at a competitive level. H3G’s argument is that dispute resolution is not merely an exercise akin to arbitration by an independent third party, it is part of Ofcom’s regulatory functions. That being so, it is said, it should be inconceivable that Ofcom could fix a price which is inconsistent with the pro-competitive objectives which it is required to promote under the Framework Directive. The Tribunal decided in H3G2 that Ofcom might lawfully fix a rate of charge that was appreciably above the competitive level, though not so high as to be abusive: see paragraphs 89 to 93. Miss Rose submits that this cannot be correct, in which she is supported by Mr Anderson Q.C. on behalf of BT. This is her first ground of appeal, and is only relevant if the dispute resolution powers are themselves found to be relevant, despite the second ground of appeal. In my judgment it is not necessary to resolve that issue, because the second ground of appeal does not succeed, the dispute resolution provisions are to be ignored, and it therefore does not matter whether Miss Rose is right or the Tribunal is right as to the possible lawful outcomes of the process. I can see that it is an important point, in itself, and I can see a good deal of force in Miss Rose’s submissions on the point, but since it is not necessary, I do not propose to lengthen or delay this judgment still further by discussing a point not essential to my reasoning.

The third ground of appeal is separate and distinct, and relates specifically to the imposition of price control on H3G for 2007 to 2011. Miss Rose argued that price control depends, under section 88, on whether Ofcom conclude that there is a relevant risk that the undertaking might so fix and maintain some or all of its prices at an excessively high level, with adverse consequences for end-users. It is said that Ofcom did not come to that conclusion (or if they did, they had no proper grounds for doing so) and therefore could not impose price control. Ofcom’s primary basis for imposing price control was not that H3G had shown any specific tendency to impose excessive prices, but rather that it had the ability to charge excessive prices, and an incentive to do so, and there was no other factor in the market which would remove that risk in the absence of ex ante price regulation, as there had been in 2004, when H3G was so new in the market. Nor did Ofcom consider that dispute resolution and the E2E obligation could be brought into account to counteract this, for both the reasons already mentioned, namely that the price fixed might be above the competitive level, and that it was in any event irrelevant. So far as the first of these points is concerned Miss Rose showed us that the Tribunal did not conclude that Ofcom could fix a price which was excessively high, so as to be within section 88: see paragraphs 91-2, and paragraph 93 referring back to the penultimate sentence of paragraph 86, as well as the reference earlier in paragraph 86 to a price which is higher than the most efficient level but within the bounds of reasonableness “without giving rise to any significant detriment to end-users”.

The debate under sections 87 and 88 proceeds on the footing that there has already been a finding of SMP on the relevant market. It can fairly be said that the structure of the sections shows that it does not follow, merely because there has been a finding of SMP, that price controls can be imposed. Otherwise it would not have been necessary to prescribe the additional requirement that section 88 be satisfied. The provisions of section 88 derive from article 13 of the Access Directive, quoted above at paragraph [24]. Reading the provisions as to price control in their context in the Access Directive, while it is a legitimate point that the imposition of price controls is not necessarily to be possible in every case where there has been a finding of SMP, it seems to me that article 13 does not suggest that it will necessarily be unusual or exceptional that price controls are imposed. “Situations where a market analysis indicates that a lack of effective competition means that the operator concerned might sustain prices at an excessively high level … to the detriment of end users” (to quote from article 13) would not be uncommon when a finding of SMP has been made.

At this stage it must be clear that the modified Greenfield approach would exclude from consideration the fact (assuming this in Miss Rose’s favour) that, by virtue of resort to Ofcom’s dispute resolution powers, neither BT nor H3G could impose unreasonable terms on the other. Since that factor would go to the question whether H3G has SMP, to which, for reasons already given, it is irrelevant, it must be all the more irrelevant once it has been established that H3G does have SMP. It would entirely subvert the regulatory structure under the CRF in SMP cases if it were open to an undertaking with SMP to avoid price control by means of this argument.

Miss Rose’s other argument is that there was in any event no factual basis on which Ofcom could conclude that H3G might fix or maintain its prices at an excessively high level with adverse consequences for end-users. Ofcom dealt with this, in relation to each of the MNOs, in section 7 of the MCT statement. Paragraph 7.1 states Ofcom’s belief “that absent regulation, or the threat of regulation, MNOs would have the ability and incentive to set excessive charges for MCT.” The rest of the section is largely devoted to a discussion of whether the effect of excessive charges would in fact be detrimental to end-users, with the conclusion that it would be. The Tribunal agreed with Ofcom’s reasoning in this section, and their conclusion that each MNO might impose excessive charges, specifically (as regards the Tribunal’s decision) as this applied to H3G: see paragraphs 284 to 286. There was also, in any event, some evidence that H3G would take advantage of its SMP, discussed by the Tribunal at paragraphs 289 and following. In the light of this, it seems to me that H3G could only show that section 88 was not satisfied by reference to the regulatory powers to control its prices, but that is a circular argument of exactly the kind that the modified Greenfield approach excludes.

For those reasons I conclude that the third ground of appeal fails, as well as the second. I do not need to decide on the first ground, because it would only arise if the second succeeded. I would hold that Ofcom were justified in finding that H3G had SMP in 2004, and also that in 2007 not only did it have SMP but that it might set excessive charges for MCT, so as to justify price control under section 88. It follows that the appeal should be dismissed.

We had some submissions about whether questions should be referred to the European Court of Justice. Although it has been necessary in the course of this appeal to consider the ambit and application of the modified Greenfield approach, which has been developed as a European Community concept in this particular context, it does not seem to me that this is a case in which a reference would be useful, still less in which it is necessary. The essential nature of the modified Greenfield concept is clear: it is a device for avoiding circularity in the application of a complex and interlocking regulatory system. How it applies in any given type of case will depend on what would be the result if it did not apply, and what would be the risk of circularity. In the present case it seems to me clear that the approach has to be applied in the ways that I have described, because otherwise the answer would be determined in advance in every such case. So far as the second ground of appeal is concerned the case is, in essence, on all fours with the RegTP decision by the Commission, and I see no need or reason to seek any further clarification of the right approach, since we have that Commission decision as guidance, of which Ofcom were bound to take due account.

I agree that this appeal should be dismissed. The Competition Appeal Tribunal (“the Tribunal”) decided correctly as a matter of law in its judgment dated 20 May 2008 (“the Decision”) that the dispute resolution powers of Ofcom under s. 185 of the Communications Act 2003 (“the 2003 Act”) should be disregarded when considering whether Hutchison 3G UK Limited (“H3G”) had “significant market power” (“SMP”) in the market for wholesale mobile voice call termination on H3G’s network. The Tribunal was entitled to reach the conclusion, which it did on the facts, that British Telecommunications plc (“BT”) did not have sufficient countervailing buyer power (“CBP”) to preclude SMP on the part of H3G. That is sufficient to dispose of this appeal from the Decision both on SMP and on price control.

In deciding the appeal, the following general points are important.

The issues on the appeal arise out of the European “Common Regulatory Framework” (“the CRF”), which took effect across the European Community (“the EC”) in July 2003. The CRF comprises five Directives, including, in particular, Directive 2002/21/EC (known as the Framework Directive (“FD”)) and Directive 2002/19/EC (known as the Access Directive (“AD”)). The 2003 Act gives effect to the CRF.

The 2003 Act must be interpreted consistently with the CRF, which it was intended to implement; and the CRF itself must be interpreted as a coherent whole, in the light of its purpose, viewed in its economic and commercial context: Shanning International Limited v Lloyds TSB Bank plc [2001] UKHL 31 at para [24]. The CRF was intended to establish a harmonised framework for the regulation of public electronic communications networks, electronic communications services and associated facilities and services across the member states of the EC, with a view to preventing ineffective competition and to ensuring the development of a competitive market: FD recitals (25) and (27) and art 8. That objective includes encouraging and ensuring adequate access and interconnection to services so as to promote efficiency, sustainable competition, and giving the maximum benefit to end-users: FD art. 5(1).

In the FD the market for call termination on public mobile telephone networks was identified as a market which has characteristics that may justify the imposition of regulatory obligations: FD art 15 and Annex 1. In 2003 and 2007 the European Commission (“the Commission”) recommended that the market for voice call termination on individual mobile networks be analysed to see if they were effectively competitive. The first stage of the market review requires an analysis as to whether the market is effectively competitive or there is SMP: FD art 16. If it is not effectively competitive, the second stage of the market review requires that consideration be given as to what obligations should be imposed on the operator or operators that have been designated as having SMP: AD art 8 ff, and the 2003 Act s.88.

SMP is a European concept, which is equivalent to dominance: 2003 Act s. 78(1). H3G had SMP if its economic strength enabled it to behave, to an appreciable extent, independently of competitors, customers and, ultimately, consumers: FD art 14.

The CRF and the 2003 Act provide for what are generally called ex ante regulation and ex post regulation. Ex ante regulation includes obligations that National Regulatory Authorities (“NRAs”), here the Office of Communications (“Ofcom”), may impose on particular undertakings that have been found to have SMP, including, in particular, access to markets and price controls (with an appeal from Ofcom on price control matters to the Competition Tribunal and on other matters to the Tribunal). Ex post regulation includes resolution of disputes by NRAs in connection with obligations arising under any of the CRF Directives, the 2003 Act, and the application of Article 82 of the EC Treaty or Chapter II of the Competition Act 1998 as regards abuse of a dominant position. The two types of regulation exist side by side, that is to say, in the case of any market ex ante regulation is supplemented by ex post regulation which may be required from time to time to deal with particular disputes or abuse in that market.

So, in the present case, ex ante regulation includes the obligation imposed on BT by Ofcom by notification published on 13 September 2006 not to refuse a reasonable request by any network operator, including H3G, for BT to purchase termination of voice calls on that network operator’s network. That obligation was to achieve “end to end connectivity” (“E2E”), that is to say the ability to make calls between (among others) retail customers of BT and other network operators. BT’s E2E obligation was an access related condition under ss. 45(2)(ii), 73 and 74 of the 2003 Act (giving effect to AD art 5(1) and (3)). Ex ante regulation also includes the price controls which Ofcom, having found SMP on the part of H3G, seeks to impose on H3G by way of an SMP condition under the 2003 Act ss. 45(2)(iv) and 87(9) and which H3G seeks to resist on this appeal. By contrast, s.185 of the 2003 Act (giving effect to FD recital (32) and art. 20, and AD art 5(4)), which provides, for example, for the reference to Ofcom of particular disputes between communication providers and others, is ex post regulation. Section 185(1)(d) mentions specifically disputes over access related conditions, such as BT’s E2E obligation.

The nature, scale and scope of the two different types of regulation, ex ante and ex post, are quite different. Investigation of whether a network operator has SMP, and, if so, whether SMP conditions should be imposed is a lengthy, painstaking and detailed process pursuant to s. 79 of the 2003 Act (giving effect to FD art 16). Guidance on how it should be carried out has been given by the Commission: [2002] OJ C165/6 (“the Commission Guidelines”). As is shown in the present case, it can take years to complete. By contrast, dispute resolution by Ofcom under s. 185 must, save in exceptional circumstances, be completed within 4 months, at the latest: 2003 Act s. 188(5) and (6). Dispute resolution by Ofcom under s.185 was described by the Tribunal in its judgment in T-Mobile (UK) Limited v Office of Communications [2008] CAT 19 at paragraph [5] as “intended to be a rapid and relatively informal means of breaking a commercial deadlock between the parties”.

In its statement published on 27 March 2007 (“the MCT Statement”) Ofcom designated mobile voice call termination on each mobile network in the United Kingdom as a distinct market. The NRAs in all the other member states of the European Union (“the EU”) have made a similar ruling in their respective countries.

H3G, like the other mobile network operators (“MNOs”), has 100 per cent share of the market in terminating calls on its own network. There is therefore a strong starting assumption that it has SMP in relation to access to its network. As expressed in the Commission’s decision in Case DE/2005/0144 RegTP (17.5.2005) (“RegTP”) at paragraph (17):

“Convincing” evidence is required to rebut the presumption: ibid para. (38).

Whether or not H3G is able to exercise SMP on that market will depend, therefore, on the extent to which it can show that BT, as by far the largest buyer of that service, has sufficient countervailing buyer power (“CBP”) to off-set what would otherwise be the significant power of H3G in that market: 2003 Act s. 78(1). CBP is not a statutorily defined expression, but is part of the overall assessment of whether a network operator has SMP: see para 78 of the Commission Guidelines.

In determining whether or not H3G has SMP, a so-called “Greenfield” approach is to be adopted. This is an analytical approach which is intended to avoid circularity, and to give purposive and workable effect to the CRF, by requiring regulation to be ignored which would otherwise distort inappropriately the answer to the enquiry whether a network operator has SMP. It was explained in the following way by the Commission in RegTP at paragraphs (22) and (23):

That is the co-called “modified Greenfield approach”, which requires BT’s E2E obligation to be taken into account in the SMP enquiry. It is to be distinguished from a “strict Greenfield approach”, which was rejected by the Commission in RegTP, under which an E2E obligation would be ignored. At the heart of this appeal is the relevance and impact of BT’s E2E obligation on the issue whether H3G has SMP.

The Tribunal concluded that, although BT’s E2E obligation had to be taken into account, the modified Greenfield approach required the dispute resolution powers of Ofcom under s. 185 of the 2003 Act to be ignored since they operate as a regulatory restraint on what H3G can charge BT for interconnection. H3G maintains that is incorrect. It further maintains that the Tribunal was wrong to find that Ofcom could determine a price dispute with BT by setting a price appreciably above the competitive level. If H3G is correct on both those points, then BT plainly had sufficient CBP to preclude SMP on the part of H3G.

That brief summary does not do full justice to the excellent submissions of Ms Dinah Rose Q.C. on this part of the appeal. Her sophisticated analysis proceeded along the following lines. On the facts, BT had CBP because it was a very large, experienced, knowledgeable and price sensitive purchaser, whereas H3G was a small, new entrant to the mobile telephone market, and would speedily have gone out of business if BT refused to connect with it. BT’s E2E obligation was imposed in order to correct that imbalance. That obligation was plainly relevant to, and reduced, BT’s CBP, but not to such an extent as to make H3G dominant and so give it SMP. That is because BT could only be required to connect on reasonable terms and conditions, and such terms and conditions would not be reasonable if they were such as to confer SMP on H3G. If a dispute as to the reasonableness of those terms and conditions was referred to Ofcom under s. 185 of the 2003 Act, Ofcom could not set a price appreciably above the competitive level, that is to say at a level which distorts competition. It was proper to have regard to Ofcom’s dispute resolution powers, even under a modified Greenfield approach, since, as part of the E2E obligation, they were part of the regulatory framework for restraining abuse by BT of its superior market strength. That is to say, such regulation included regulation of BT’s fixed termination charges, its E2E obligation, and potential enforcement of that obligation by dispute resolution. The latter was not regulation of H3G. In any event, the Tribunal should not have decided otherwise, since Ofcom itself, prior to the appeal to the Tribunal from the MCT Statement, acted and reached its conclusion on H3G’s SMP on the basis that the s. 185 dispute resolution powers were to be taken into account in connection with BT’s E2E obligation. That approach of Ofcom, prior to the appeal to the Tribunal, was consistent with the earlier judgment of the Tribunal in Hutchison 3G (UK) Limited v Office of Communications [2005] CAT 39 (“the 2005 Decision”) on H3G’s successful appeal from Ofcom’s determination in its statement dated 1 June 2004 that H3G had SMP. The 2005 Decision was never appealed. Even if Ofcom’s dispute resolution powers were ignored under the modified Greenfield approach, it still remained the case that BT could only be required to connect on reasonable terms and conditions. BT was in a sufficiently strong commercial position, in comparison with H3G, that there was no reason to believe that it would agree to unreasonable terms demanded by H3G, that is to say, for example, a price so appreciably above the competitive level as to render H3G dominant in the market. Alternatively, the Tribunal ought to have remitted the case to Ofcom for reconsideration since Ofcom itself had never considered the position as regards H3G’s SMP if Ofcom’s dispute resolution powers under s. 185 were ignored.

In my judgment, there are short answers to those points, attractively put as they were.

Whether or not the modified Greenfield approach required Ofcom’s dispute resolution powers to be ignored (as a constraint on H3G) in the context of BT’s E2E obligation is a matter of law. I see no good reason why Ofcom should not have been entitled to change its position on the point at the stage of the appeal before the Tribunal. The appeal is an appeal “on the merits”: 2003 Act s. 195(2); Freeserve.Com plc v Director General of Telecommunications [2003] CAT 5, esp. at paras. [106] – [113]. The 2005 Decision did not preclude the Tribunal considering the matter. The 2005 Decision was essentially concerned with a different argument, and was neither clear nor consistent on the point. In her skeleton argument Ms Rose relied on the decision in Napp Pharmaceutical Holdings Limited v Director General of Fair Trading [2002] ECC 3, but that case does not seem to me materially to assist H3G. In that case the Director General of Fair Trading (“the OFT”) was not allowed to rely before the Tribunal on certain new evidence to justify a finding by the OFT of abuse of a dominant position. The Tribunal acknowledged, however, that it had a discretion to admit new evidence, and that the manner in which the discretion would be exercised would depend upon the particular facts and circumstances. The Tribunal did in fact decide to permit certain new evidence to be admitted. Further, the circumstances in that case were not analogous to the present dispute, which concerns the correct legal analysis of a regulatory function. In any event, in the present case the other MNOs who intervened on the appeal before the Tribunal contended that Ofcom’s dispute resolution powers were to be ignored. They were plainly entitled to do so, since they were not bound by the MCT Statement, and, apart from BT, were not parties to the proceedings before the Tribunal resulting in the 2005 Decision. In those circumstances, I see no good reason why the Tribunal was not entitled to proceed with and decide the appeal on the basis of the modified Greenfield approach for which they and Ofcom contended.

H3G is correct in submitting that BT’s E2E obligation was imposed in order to promote fair competition in circumstances in which there might otherwise be a competitive imbalance between BT and other network operators. It is not correct, however, that Ofcom’s power to resolve disputes over the reasonableness of prices demanded or offered for the purchase of interconnection by BT is merely regulation of BT, for the purposes of the modified Greenfield approach. It seems obvious that Ofcom’s dispute resolution powers under s. 185 of the 2003 Act are capable of both protecting the MNOs from unreasonably low prices put forward by BT, and protecting BT from demands by MNOs for excessive prices. Insofar as Ofcom’s dispute resolution powers embrace the latter, they are ex post regulation of MNOs, including H3G, which the Tribunal was right to ignore on the modified Greenfield approach. That conclusion is consistent with the analysis and decision of the Commission in RegTP, which I discuss in greater detail later in this judgment. It is also reinforced by the following two considerations.

If H3G is correct that the modified Greenfield approach requires Ofcom’s dispute resolution powers to be taken into account in the enquiry as to a MNO’s SMP, and, in exercise of them, Ofcom cannot set a price appreciably above the competitive price, it is difficult to envisage any circumstances in which a MNO will ever have SMP in the market for wholesale call termination on its network. It would, therefore, never be possible to have ex ante SMP regulation in relation to that market. That would be contrary to the CRF, which envisages ex ante and ex post regulation operating side by side.

Further, dispute resolution, the restriction of an E2E obligation to reasonable terms and conditions, and Article 82, are plainly not suitable or sufficient substitutes for the thorough ex ante regime intended under the CRF for the protection of consumers by enabling NRAs in member states across the EU to determine whether voice termination markets are effectively competitive and, if not, which of the remedial obligations in AD arts 9 to 13 should be imposed under the 2003 Act. As I have said, dispute resolution must be carried out within 4 months, save in exceptional circumstances. Moreover, there might be occasions when, for purely commercial reasons, perhaps to do with other dealings between them, BT would agree terms with a MNO even if the agreed rates were above the competitive level, rather than dispute those terms and refer the dispute to Ofcom for resolution. As the Tribunal said in paragraph [123] of its Decision:

If a narrow, technical and literal approach is adopted to the enquiry about H3G’s market power in the hypothetical situation in which BT’s E2E obligation is recognised, but Ofcom’s dispute resolution powers are ignored, there is scope for obscurity and uncertainty. BT’s E2E obligation requires it to purchase call termination services on request, but the obligation to interconnect is (and all parties agree that in the hypothetical circumstances it is to be regarded as) limited to interconnection on reasonable terms and conditions. There was not much consideration before us, however, whether the hypothesis is that some body other than Ofcom, such as the courts, could and would determine what would be reasonable in the event of dispute, what the remedies of the parties might be in those circumstances, and what commercial or tactical position the parties might realistically take in the light of those hypothetical considerations. Instead, Ms Rose adopted the broad and straightforward approach that, in the hypothetical situation postulated, the matter would essentially come down to the commercial position of the parties; and that, in view of BT’s obviously superior economic position, BT could and would simply refuse to interconnect with H3G’s network if H3G sought to impose unreasonable terms or conditions, including unacceptably high termination rates. For that reason, she submitted, BT’s CBP was sufficient to undermine the case for SMP on the part of H3G, and the Tribunal ought to have so held. Subject to one important point, that approach appears to me fairly to reflect the fundamental issue, namely whether, ignoring ex post regulation, H3G could demand and secure from BT terms and conditions for interconnection that it could not have done if it did not have dominance, that is to say if it could not behave to an appreciable extent independently of competitors, customers and ultimately consumers, including BT: 2003 Act s.78(1) and (2), FD art 2(2). The qualification, which is an important one, is that, as stated by the Commission in RegTP and quoted above, in view of H3G’s 100 per cent market share, there is a strong presumption in favour of SMP on the part of H3G, notwithstanding the qualified nature of BT’s E2E obligation, and that the onus is on those seeking to rebut that presumption to provide clear and convincing evidence of the absence of SMP.

Ms Rose emphasised Ofcom’s findings that BT was a well informed and price sensitive purchaser of mobile call termination, and that H3G could not survive commercially without an interconnection with BT. In comparing them, as I have already mentioned, she said that BT was large, knowledgeable and expert whereas H3G was small and a relatively recent entrant to the telecommunications market. It is clear, however, that both Ofcom and the Tribunal concluded on the facts that the commercial pressures on BT to connect to H3G’s network and other practical considerations were such as to undermine substantially BT’s CBP. In paragraph 4.35 of Ofcom’s statement published on 27 March 2007, in which, following the Tribunal’s 2005 Decision, it reconsidered the question whether H3G had SMP for the period 2004-2007 (“the Reassessment Statement”), Ofcom said that “knowledge and price sensitivity alone are insufficient to constrain prices.” It said the same in paragraph 5.117 of the MCT Statement. In the Decision the Tribunal summarised as follows (so far as relevant to this appeal) Ofcom’s findings in the Reassessment Statement and the MCT Statement on the commercial and other practical considerations on BT to interconnect with the MNOs’ networks, and particularly H3G’s network, which undermined BT’s CBP:

Ofcom’s decisions on BT’s CBP and H3G’s SMP were based, in part, on those considerations and, in part, on its decision that, in the event of a dispute between BT and H3G about the reasonableness of prices to be charged to BT for call termination on H3G’s network, Ofcom could impose a price under s. 185 of the 2003 Act which was appreciably above the competitive level. H3G’s appeal to the Tribunal largely centred on that issue. Ofcom successfully persuaded the Tribunal that it was right in that regard. That issue is reflected in Ground 1 of the appeal to this Court. As I have said, Ofcom advanced for the first time before the Tribunal a second line of Defence (which I am presently considering and which is Ground 2 of the appeal to this Court), namely that Ofcom’s dispute resolution powers in any event fall to be disregarded when assessing H3G’s market power. Ofcom succeeded on that issue also, and, for the reasons I have given, was entitled to do so. Ms Rose submitted that, even if the Decision of the Tribunal is upheld on that point, that is not the end of the matter, since Ofcom never considered the specific issue whether, if Ofcom’s s.185 dispute resolution powers were ignored, the facts were such as to establish that BT’s CBP was sufficient to negate SMP on the part of H3G.

It is clear that the Tribunal itself did find that, in the light of the facts established by Ofcom, BT did not have sufficient CBP to prevent SMP on the part of H3G, or, putting it differently, the facts were not such as to rebut the strong presumption that H3G had SMP, even though BT’s obligation was a limited one. I have set out above the Tribunal’s detailed summary of the commercial and practical factors which Ofcom considered undermined BT’s CBP. In paragraph [124] of the Decision, the Tribunal said:

The Tribunal summarised its conclusions on SMP at paragraphs [140] –[141] of the Decision, where it said as follows, so far as relevant:

It is clear from those passages that the Tribunal was endorsing Ofcom’s conclusions on BT’s insufficient CBP and H3G’s SMP, even if Ofcom’s s.185 powers were ignored.

Ms Rose submitted that the Tribunal was wrong to have reached that conclusion on the facts, and that it should have remitted the matter back to Ofcom for further consideration. I do not agree. As I have said, the appeal to the Tribunal was an appeal “on the merits”. In the light of the extensive findings of fact by Ofcom on the commercial and other practical considerations undermining BT’s CBP, the Tribunal was fully entitled to decide the appeal without remitting that aspect back to Ofcom. Ms Rose criticised Ofcom’s rejection of the economic analysis contained in papers by Dr David Harbord and Professor Ken Binmore on the ground that Ofcom’s rejection was the result of a misconstruction by Ofcom of BT’s E2E obligation and the way that Ofcom would resolve any dispute. My understanding is that this point is relevant to Appeal Ground 1 and does not arise under Appeal Ground 2 if, as I consider, the dispute resolution powers of Ofcom under s. 185 of the 2003 Act must be ignored for the purposes of the enquiry whether H3G had SMP. If my understanding is wrong, nevertheless the Tribunal was entitled to form, and did form, its own view of the facts in the light of all the evidence. The Tribunal is a specialist and highly qualified body, and this court would be very slow to interfere with its findings of fact. I would reject the need to remit the matter to Ofcom because of the view Ofcom took of the analysis by Harbord and Binmore.

It is noteworthy that the Tribunal’s analysis and conclusion mirror those of the Commission in RegTP. The Commission’s ruling in that case was given pursuant to its power under the CRF to veto decisions taken by NRAs as to whether an undertaking has SMP. The German regulator, RegTP, had identified 54 operators, each of which had its own separate market for call termination on an individual public telephone network. Each operator had a 100 per cent market share on its respective network. Of those, Deutsche Telekom AG (“DTAG”) was the incumbent network operator, and 53 were much smaller alternative network operators (“ANOs”). The Commission rejected the conclusion of RegTP that the 53 ANOs did not have SMP on their respective networks because of DTAG’s CBP, bearing in mind its superior economic position and that, although it was under an obligation to interconnect, that obligation was only an obligation to connect on reasonable terms. The Commission found that, regardless of the existing regulatory framework, DTAG had little economic incentive to cut off current interconnection with, or to stop buying termination services from, any particular ANO for similar reasons to those found by the Tribunal in the present case regarding BT and H3G’s network. The Commission considered that the source of an ANO’s market power for termination on its own network was not the regulatory requirement on DTAG to interconnect, but the ANO’s 100 per cent market share and the control over its network and over a service for which no substitute existed. The Commission considered that the CBP of a large operator was essentially lost if its call termination rates were regulated in the separate market for call termination on that operator’s individual public telephone network and it could not realistically threaten to stop purchasing termination services: it would be deprived of any bargaining tool in the form of a corresponding increase in its own tariffs when negotiating termination rates on that ANO’s network. The Commission concluded that, in the circumstances, RegTP had not provided convincing evidence to support the absence of SMP of each ANO. The matter then went back to the NRA, which decided that the ANOs did have SMP.

In Ground 1 of the appeal H3G contends that the Tribunal erred in concluding that Ofcom could determine a price dispute between H3G and BT by setting a price appreciably above the competitive level. That is an important point, but it does not strictly arise for decision on this appeal in view of what I have said above. The issue involves consideration of the meaning of, and the relationship between, concepts and expressions in the European and UK statutory framework of competition law such as an abusive price, an excessively high price, a price appreciably above the competitive level, a reasonable price, a competitive price, and the most efficient cost related price. It also involves consideration of whether the reasoning and conclusions of the Court of Appeal in Attheraces Ltd v The British Horseracing Board Ltd [2007] EWCA Civ 38 about excessive and unfair pricing, and in particular whether a competitive price can be equated with a cost plus price and whether an abusive price is one which significantly exceeds the economic value of the product, are relevant to the determination under s. 185 of the 2003 Act of disputes about charges. There is disagreement between the parties about those matters. It is also necessary to consider the implications of the limited time and available information for Ofcom to reach a decision under s.185.

I am inclined to agree with Ms Rose’s submissions that “reasonable terms and conditions” for BT’s E2E obligation are those which are reasonable as between the parties and also reasonable having regard to Ofcom’s statutory duties and duties under the CRF, and so Ofcom could not lawfully require BT to pay a price for call termination which was so appreciably above the competitive level that H3G was rendered dominant in the market. She was supported on this point by Mr David Anderson QC, for BT. I do not consider it appropriate, however, formally to decide this hypothetical point when it is not strictly necessary to do so on this appeal, and the various potential factual situations in which the point might arise are so many and varied.

It follows from what I have said earlier in this judgment that the Tribunal was correct to find, at paragraph [287] of its Decision, that under the modified Greenfield approach Ofcom’s potential intervention to set a price in a dispute between BT and H3G must be disregarded when considering, for the purposes of s. 88 of the 2003 Act, H3G’s likely conduct in the absence of regulation.

I do not understand H3G to contend that, if the Tribunal was correct on that point, Ground 3 of the appeal is sustainable. If my understanding is wrong, I nevertheless agree with Lloyd LJ that, for the reasons given by him, this ground of appeal must be dismissed.

For all those reasons, I agree with Lloyd LJ that the appeal should be dismissed.

I agree with both judgments and there is nothing useful I can add.