Justin Le Patourel v BT Group PLC & Anor (II)

In a judgment dated 19^th December 2024 (“the Judgment”) the Competition Appeal Tribunal (“theCAT”) dismissed the claim of a Class Representative, Mr Le Patourel (“the CR” or “the applicant”), for aggregate damages under section 47A Competition Act 1998 (“CA 1998”) against BT Group Plc and British Telecommunications (“BT”). Earlier in the proceedings, the CAT had certified the claim as appropriate for a collective action upon an opt-out basis. That ruling was upheld by this Court: [2022] EWCA Civ. 593(“Le Patourel I”).

The claim was that BT had abused a dominant position, contrary to section 18 CA 1998 by excessive and unfair pricing to two categories of customers in the market for the provision of landline telephone services to residential addressees. These are known as Standalone Fixed Voice or “SFV services”. They are provided where the customer contracts with BT for access to the telephone network for voice calls only. The charges comprise a fixed line rental charge and a variable charge for calls made. In paragraph [3] of the Judgment the CAT described the two categories of SFV customer and the alternative way in which telephony services are provided, namely through bundling with broadband services:

“Within the provision of SFV Services there are, according to the CR, two customer groups. The first consists of Voice Only Customers (“VOCs”). A VOC buys an SFV service and does not buy a broadband service from either the same or any other provider. As at 2019, there were 1.2m such customers, representing about 5% of total residential customers. The second customer group encompasses Split Purchase Customers (“SPCs”). As at 2019, there were 1.1m SPCs. Such customers also take a broadband service pursuant to a separate contract, either with BT or with some other provider. What they do not have is a “bundle”, i.e. a package of telephone and broadband services provided together by the same supplier under one contract. The market for bundles, comprising voice and broadband, and which the CR says is separate from the SPC market, is known in the industry as “Dual Play” (“DP”). There are also several other bundles sold alongside voice by BT and others, including services such as TV, mobile etc.”

The nub of the claim was that the prices charged by BT for the SFV services were excessive when compared to the cost of provision. Section 18 CA 1998 prohibits the charging of “unfair” prices. There is no single method laid down in case law for determining fairness: see for a recent analysis Cinven Capital Management and others v CMA [2025] EWCA Civ 578 (“Cinven”) at paragraphs [18]-[26]. One central method is known as “Cost-Plus”. Under this the cost (“the Cost”), together with an appropriate return on capital employed (“the Plus”), of providing the good or service in question is established. The resultant Cost-Plus figure is then compared against the selling price to determine a differential. The selling price might be established on an annualised basis or as an average price over a fixed period, such as the period of the alleged infringement. This is described as the Limb 1 test. The CAT then determines whether the differential is justified, and hence fair or unfair in law. This is described as the Limb 2 test. It performs this test by reference to a range of factors largely focusing upon whether consumers attribute “value” to various aspects or features of the good or service in question and any other consideration put forward by the undertaking in question. It may also, where evidence permits, take into account how markets behave (e.g. as to prices) in comparable, workably competitive, markets. The CAT then determines whether the sum total of all the relevant factors to which some value can be attributed adds up to a cumulative value which bears a “reasonable” relation to the selling price.

In the Judgment, the CAT identified the main issues arising for determination. The liability issues were: (i) market definition; (ii) dominance on the part of BT; (iii) whether the prices charged by BT were excessive in the sense that that they were above Cost-Plus (the Limb 1 test); and (iv), if they were, whether they were nonetheless justified and fair (the Limb 2 test). The quantum issues were: (i) whether there was a failure to mitigate by the class; (ii) what the correct approach in principle was to quantification of the overcharge; (iii) what the size of the class was; (iv) whether damages should be increased to include inflation; (v) whether compound interest should be awarded as damages for loss of use of monies; and (vi) how much should be awarded by way of simple interest.

At face value the CR had an attractive case: Ofcom had earlier found, provisionally, that BT was overcharging and BT agreed to take remedial action as part of the basis upon which Ofcom closed the case (for a summary see Le Patourel I paragraphs [10] – [20]); the CR calculated that the excess of selling price over Cost-Plus was between 74 – 90% for each of the claim years except 2021-22 when it was 60% with an average of 68%, margins which in other cases had been found to amount to unfair and abusive pricing; the (unbundled) SFV services were to be compared and contrasted with the bundled service also offered by BT where prices were materially lower and (it was said) there was no logical explanation for these contrasting prices save that BT was exploiting unfairly those customers who took SFV services; BT was clearly in a dominant position given its persistently very high market shares which enabled it to impose unfair prices; and, the burden of proof placed upon BT by the law to justify these prices was high which in the circumstances it had failed to meet.

The trial lasted 28 days in court between January and March 2024. The Judgment runs to [1428] paragraphs.

In the light of the case law the CAT, endorsing the position of the parties, sensibly sought to adopt a streamlined approach to the evidence. It explained its approach to determining abuse in Judgment paragraphs [53] – [56] where it resolved a debate about where within the overall test issues of “value” were to be taken into consideration. The CAT limited the “Plus” (in Cost-Plus) to determination of an appropriate rate of return on investment (a Limb 1 exercise), and it analysed all issues relating to value and justification for the differential (under Limb 2). Paragraph [53] explained:

“For our part, and notwithstanding the flexibility open to a court or competition authority as to where to take into account the question of economic value, we consider the approach taken by the parties to be a helpful one. This is for two reasons. First, it enables the Limb 1 exercise, complex and challenging as it may be, to focus on the linear process of deciding (a) the relevant competitive benchmark, (b) the excess of the price (if any) over that benchmark, and (c) whether such excess is significant and persistent (for the latter, see paragraphs 54-55 below). One would perhaps hesitate to describe such a process as “mechanical” where the underlying questions can be the subject of hotly contested expert evidence and where they involve various value judgments, and moreover where there is a margin of appreciation afforded, at least to a competition authority. Nonetheless, we consider that it is, from an analytical point of view, “cleaner” and more efficient if the question of economic value can be considered as part of the Limb 2 unfairness exercise which, on any view, is clearly less “mechanical” than the Limb 1 exercise, and where a multiplicity of different factors can be taken into account.”

The CAT found that BT was dominant in the market for SFV services. It set out market share figures for various segments of the SFV market at paragraphs [116] – [117]. These ranged from over 50 – 98%. In law, these were sufficient to create a strong presumption of dominance which was engaged at 50%: see Judgment paragraphs [454] – [461] and [494] – [495]. The CAT held that there was evidence of switching, which prima facie might suggest that there were material constraints upon BT’s market power, but held that on the facts this was insufficient to rebut the strong presumption of dominance, citing Case C-457/10 Astra Zeneca v Commission (6^th December 2012) at paragraph [176]:

“The Court has already clarified that, although the importance of the market shares may vary from one market to another, the possession, over a long period, of a very large market share constitutes in itself, save in exceptional circumstances, proof of the existence of a dominant position (Hoffman-La Roche v Commission, paragraph 41) and that market shares of more than 50% constitute very large market shares (Case AKZO v Commission, paragraph 60).”

There were other competitive constraints upon BT’s market power but these, equally, were insufficient to rebut the presumption: Judgment paragraphs [462] – [493].

In relation to BT’s pricing, detailed conclusions on the differential in the period 2015-2022 were set out in paragraphs [915] – [930]. The CAT held that over the period the magnitude of the excess was “significantly and persistently in excess of the competitive benchmark” (Judgment paragraph [928]). Importantly, the CAT held that the differential (the excess) was [33.9%] – [49.9%] for all the claim years save the last one when it was 25%, yielding an overall average excess of 38% (Judgment paragraph [933]), not however [74%] – [90%] with an average of [78%] as the CR submitted.

The CAT then proceeded to determine the Limb 2 question viz, whether the differential it found was justified and hence fair: Judgment paragraphs [931] – [1301]. On the facts the differential was justified, and prices were hence therefore fair in law, with the consequence that there was no abuse of dominance. The claim for damages failed.

The CAT refused permission to appeal, and the applicant now seeks permission from this Court. The issues arising are complex and the Court directed that the application be heard orally with the benefit of detailed written submissions.

The Court of Appeal has jurisdiction in appeals of this sort only on points of law: section 49(1) CA 1998. Where an issue focuses upon an evaluation of evidence it is, at least in principle, capable of amounting to an error of law in some circumstances: see e.g. Airwave Solutions Limited v CMA [2025] EWCA Civ 54 at paragraphs [88] and Cinven (ibid) at paragraphs [161], [242] – [243]. Classic illustrations are where the CAT acted irrationally in its findings in the sense that no CAT could, acting reasonably, arrive at the conclusion that it did, or failed to address relevant considerations, or took into account irrelevant considerations. However, this Court has to ensure that it does not, without good and proper reason, interfere in the exercise of the legitimate discretion of the CAT to find facts and draw inferences from those facts. Both the nature of the evidence and the institutional composition of the CAT are factors affecting the breadth of the margin of discretion that must be accorded to the CAT and this impacts upon the sorts of alleged errors that the Court will recognise as amounting to viable grounds of appeal:

With this in mind the CR advances four proposed grounds of appeal. The first two concern the analysis of the CAT in relation to the calculation of cost and the third concerns the evaluation of the CAT as to the justification for the differential between its findings on Cost-Plus and selling price. The fourth concerns the failure of the CAT to award compound interest, an issue which only arises if the applicant obtains permission to appeal, succeeds on the appeal and in due course prevails on the argument that some measure of recoverable damage was sustained. The proposed grounds are drafted as follows:

“Ground 1: The CAT erred in effectively disregarding BT’s entirely voluntary failure to produce relevant factual evidence on the indirect costs of SFV Services, in that (i) contrary to clear authority, and despite its criticisms of BT in this connection, the CAT, as it stated in J666, failed to give any significance to, or to draw adverse inferences from, BT’s failure to produce such evidence although it could have done so at a cost which was comparatively “modest” (J703); (ii) the CAT compounded this error by wrongly assuming that the burden of proof was on the CR rather than recognising the heavy evidential burden on BT (e.g. J777 and J904); and (iii) it was thus inappropriate to give much, if any, weight to the evidence of Dr Jenkins who was called as an expert witness by BT to “fill the gap” caused by BT’s failure to produce such evidence.

Ground 2: When deciding in J906 that 40% of BT’s common costs were attributable to SFV Services, the CAT relied on the so-called Stand-Alone Costs Combinatorial analysis (“SAC Combi”), which was (i) irrational, as the CAT had found that the SAC Combi was unreliable for a number of reasons (J842, 844, 855, 856 and 874); (ii) inconsistent with its endorsement of the evidence of the CR’s expert Mr Duckworth that the use of SAC Combi was inconsistent with the CAT’s decision in PPC (J662 and 864); and (iii) on a basis which was unreasoned and unexplained.

Ground 3: When considering whether BT’s excessive pricing bore a reasonable relation to economic value, the CAT: (a) wrongly focussed in J933-934 on the irrelevant fact that the excessiveness of the price charged by BT was “dramatic[ally]” different from that alleged by the CR”; (b) failed to address the relevant fact that the excess was substantial (25 to 49.9%), greater than in some other cases where unfairness was established; (c) failed to focus on a centrally relevant question, namely whether the SFV customers would have been prepared to pay excessive prices; (d) seriously misdirected itself in a number of other respects, namely: (i) adopting the willingness to pay fallacy – a fallacy which has been highlighted by the Court of Appeal (J960-961); (ii) assessing the evidence on switching on the basis of inconsistent reasoning (J1099-1134); (iii) misdirecting itself as to the meaning of the new concept of “distinctive value” (J8300); (iv) in its partially wrong and partially unexplained treatment of the Gives (J963-1032); and (v) in its partially wrong and partially unexplained treatment of brand value (J1135).

Ground 4: The CAT erred in holding that it could not award compound interest.”

The nub of the complaint is narrow. It is that the CAT erred in its approach to the expert evidence of BT in relation to the allocation of certain costs of BT in providing the SFV services. This is a Limb 1 issue. The CR’s case is that BT deliberately failed to produce important evidence leaving the gap to be filled in the evidence of its expert who was however then starved of assistance and relevant information by BT. The CAT in the Judgment was critical of BT’s approach to the evidence and was also critical of the conclusions of the expert in substantial part because it was based upon inadequate evidence. In these circumstances, the CAT should have, but did not, draw adverse inferences against BT by, in effect, ignoring the evidence of BT’s expert. The CAT failed to apply the principle that where a party is found to have failed to adduce evidence that it should have adduced an adverse inference should be drawn against it. The conclusion of the CAT on the evidence was irrational. That failing was compounded by the CAT holding, against the CR, that it failed to cross-examine BT’s expert on one part of her evidence. It was important to the future conduct of cases that this Court deprecate the conduct of BT by finding that the CAT erred in its approach to the evidence.

What happened was that an issue arose as to evidence relating to BT’s indirect costs. The costs in question related to BT’s Consumer division. This was not something that BT, in its everyday business, generated data upon. However, it would have been possible, as the CAT observed (Judgment paragraphs [703] – [704], [764], [816] and [885]), as an ex post exercise conducted for the purpose of the earlier Ofcom regulatory investigation and/or the CAT proceedings, for BT to have generated such data at a reasonable cost and within a reasonable time frame. The CAT stated:

“703.

… Given the sums at stake here, such an exercise might be regarded as involving only modest costs and not disproportionate.

…

704.

Clearly, the only party which could have produced that information was BT. It did not do so.”

Instead, BT relied upon an assessment of indirect costs made by its expert, Dr Helen Jenkins. A summary of the process by which BT’s expert came to address the issue is described at Judgment paragraphs [526] – [532]. In summary: (i) Dr Jenkins was provided with the data disclosed by BT of the indirect costs for BT Consumer as a whole; (ii) she identified which she considered to be common costs by considering the descriptors for each costs item in the disclosure and “scoring” each in terms of its likelihood of being a common cost; (iii) she then derived a “Baseline” estimate of BT Consumer’s common costs (£390m), as well as a “Low” estimate (£262m); (v) where there was no or a limited description of a cost item, she, “as a guide and no more”, used the way Ofcom classified certain cost items of BT Consumer in its VULA Margin Statement; and (vi) she performed what is referred to the “TSO Cross-Check”.

The applicant highlights methodological criticisms made by the CAT. Dr Jenkins was not given the relevant costs data or even any assistance in assessing what those data might be, by BT, or its employees, witnesses or auditors. She was provided only with the disaggregated indirect costs of BT Consumer, which were not the relevant costs. The CAT observed, “… there was a very substantial amount of disclosure from BT on the question of costs. However, it was not suggested - nor could it be - that this opened the window, as it were, to indirect costs information that was specific to SFV Services. Had it done so, no doubt Dr Jenkins would have availed herself of it” (Judgment paragraph [702]). Dr Jenkins’ approach to the evidence was based upon her subjective judgment which, as the CAT found (Judgment paragraph [816]), was “… inferior to an approach that would have been based on BT’s own detailed knowledge of cost causation, and which BT chose not to undertake for the current case”. Unlike the CR’s expert (Mr Duckworth) Dr Jenkins was not, and was not suggested by BT to be, a telecommunications costs expert. The CAT found that the VULA Margin Statement was not “an answer” to the problems with Dr Jenkins’ approach (Judgment paragraph [807]) and although the TSO Cross-Check was of “some value”, it did not provide a “complete answer” to the problems with her approach (Judgment paragraph [815]). The CAT also subjected Dr Jenkins’ analysis to certain substantive criticisms: see Judgment paragraph [817ff].

The CR complained in closing submissions that the failure of BT to generate this data was a culpable omission that should be met, on the part of the CAT, by the drawing of an adverse inference. The relevant evidence was exclusively in BT’s hands and, absent full disclosure by BT, its costs could not be scrutinised to assess whether they were “reasonably and efficiently incurred”. BT chose not to adduce such evidence, instead disclosing data on the indirect costs of BT Consumer as a whole, which was not disaggregated between different services and which did not identify BT Consumer’s common costs (Judgment paragraph [525]) and in respect of which the CAT observed that they “were not themselves the relevant costs” (Judgment paragraph [701]). In contrast, the CAT found that the method used by the CR’s expert, Mr Duckworth, to ascertain the indirect costs of SFV Services (the “RFS methodology”) was “at least an appropriate method” (Judgment paragraph [676]).

The CAT should therefore have (a) rejected Dr Jenkins’ evidence as not discharging the heavy evidential burden on BT; (b) drawn an adverse inference from BT’s choice not to adduce evidence of the costs of providing SFV Services; (c) held that it was not open to BT, in the light of that choice, to contend that the common costs of BT Consumer were material (much less of the magnitude estimated by Dr Jenkins); and/or (d) at the very least given much less weight to her evidence than it did.

Four particular criticisms are made:

Whilst the points raised by the CR are undoubtedly of interest and importance they do not reflect the way in which the issue was actually addressed by the CAT. On the facts: (i) the CAT was entitled to reject the submission that it draw an adverse inference; (ii) the adverse inference proposed by the CR was not an appropriate one to be drawn; and (iii), in any event, the CAT considered that whatever the rights and wrongs of BT’s approach, it, the CAT, could cope and arrive at conclusions on the available evidence that were justifiable. The CR’s submission raises two broad questions. First, when is it proper to draw an adverse inference? Secondly, if it is proper what sorts of inferences can be drawn? There are a series of interrelated reasons why this argument has no real prospect of success on appeal.

The applicant starts by arguing that the CAT failed to apply the principle that where a claimant raises a prima facie case that a defendant’s prices are excessive relative to a costs benchmark, the defendant is under a heavy evidential burden to provide evidence as to its costs because that evidence will be exclusively in its hands and it must therefore produce that evidence to forestall the drawing of adverse inferences. The applicant relies upon the Supreme Court in Sainsbury’s. There the merchants sought damages for unlawful merchant service charges ("MSC"). The defendant credit card schemes argued that the merchants had mitigated their loss by passing on the MSC to their customers. The Court observed:

“216.

The legal burden lies on the operators of the schemes to establish that the merchants have recovered the costs incurred in the MSC. But once the defendants have raised the issue of mitigation, in the form of pass-on, there is a heavy evidential burden on the merchants to provide evidence as to how they have dealt with the recovery of their costs in their business. Most of the relevant information about what a merchant actually has done to cover its costs, including the cost of the MSC, will be exclusively in the hands of the merchant itself. The merchant must therefore produce that evidence in order to forestall adverse inferences being taken against it by the court which seeks to apply the compensatory principle.”

It is argued that the same principle applies beyond issues of alleged mitigation in the form of pass-on citing Royal Mail Group Ltd v DAF Trucks Ltd [2024] EWCA Civ 181 at paragraph [174] (“Royal Mail”) which concerned the failure by a defendant to provide disclosure and factual evidence as to the operation of a cartel. The same principle has also been applied by the CAT in relation to a failure to adduce relevant evidence: PSA Automobiles SA v Autoliv AB [2025] CAT 9 at paragraphs [144] – [146] where the CAT drew adverse inferences from the defendant’s failure to call relevant witnesses to provide evidence of the scope of cartel activity. In CMA v Flynn Pharma Limited and Others [2020] EWCA Civ [339] at paragraphs [114] – [116] the Court of Appeal observed that in an excessive pricing case a defendant bears “an important evidential burden” and the extent of a competition authority’s duty to evaluate evidence adduced by the defendant “… will be affected by the nature, extent and quality of the evidence adduced by the defendant undertaking which has an evidential burden”. A similar series of observations is found in Cinven (ibid)at paragraph [118].

The law relating to the drawing of adverse inference was recently considered by the Court of Appeal in Phones 4U Limited v EE Limited and others [2025] EWCA Civ 869. The High Court rejected a claim for damages based upon an allegation of collusion. During the trial the Judge declined to draw an adverse inference from a failure on the part of one defendant, Telefonica: “… to adopt appropriate document preservation measures in 2015, when the allegations were first made, or for some time thereafter”, in "arrogant disregard", as the Judge put it, for the seriousness of the allegations made.

The Court of Appeal endorsed the principles set out below and upheld the Judge who, whilst obviously critical, did not, on the basis of the evidence as a whole, consider it necessary to draw any form of adverse inference. In Efobi v Royal Mail Group Ltd [2021] UKSC 33 ("Efobi") at paragraph [41] Lord Leggatt emphasised that the position was not legal or technical but was a matter of rationality and common sense. In Volpi v Volpi [2022] EWCA Civ 464 Lewison LJ observed:

"5.

Tribunals are free to draw, or to decline to draw, inferences from the facts of the case before them using their common sense. Whether any positive significance should be attached to the fact that a person has not given evidence, or to the lack of contemporaneous documentation, depends entirely on the context and particular circumstances…”

On an appeal, where it is argued that an adverse inference should, or should not, have been drawn an appellant will need to demonstrate that the court or tribunal below acted outside the realm of its legitimate discretion, or to put it another way, irrationally. Important points were made by Morritt LJ in Malhotra v Dhawan [1997] EWCA 1096; [1997] 8 Med LR 319 at page [322] about the need to balance the need for an adverse inference with other evidence and factual findings. The Judge said:

"First, if it is found that the destruction of the evidence was carried out deliberately so to as hinder the proof of the plaintiff's claim, then such finding will obviously reflect on the credibility of the destroyer. In such circumstances it would enable the Court to disregard the evidence of the destroyer in the application of the principle... Second, if the Court has difficulty in deciding which party's evidence to accept, then it would be legitimate to resolve that doubt by the application of the presumption. But, thirdly, if the judge forms a clear view, having borne in mind all the difficulties which may arise from the unavailability of material documents, as to which side is telling the truth, I do not accept that the application of the presumption can require the judge to accept evidence he does not believe or to reject evidence he finds to be truthful."

What does this mean in the present case? Here, the CAT was undoubtedly critical of the failure of BT to generate the data in issue. However, that is far from being the end of the story because the CAT was content for the issue, at least as a matter of case management, to be addressed through expert evidence and it rejected the submission that an adverse inference be drawn, and did not make a finding that BT had strategically gamed the system.

The point of departure is that in law a breach can prima facie be established where the decision maker establishes that the price exceeds Cost-Plus: see case law summarised at Cinven (ibid) paragraphs [24] and [77]. If there is no such justification for an excess, then Cost-Plus can mark the divide between lawful and unlawful. How does evidence of justification for the differential come into play? If in a regulatory investigation there was a feature of a market which was transparently capable of justifying an excess of price over Cost-Plus then the decision maker could not ignore it. However, in most cases evidence relating to justification lies in the hands of the defendant undertaking and if it is not raised by that undertaking the decision maker cannot be criticised for not taking it into account. In Cinven the issue was considered in relation to alleged patient benefits said to flow from the emergence of competitive drug offerings: see (ibid) paragraphs [118] and [182] citing from Case C-307/18 Generics (UK) Ltd and Others v CMA ECLI:EU:C:2020:52 at paragraphs [165] and [166]. There it was made clear that because the evidence will usually be in the possession of the defendant there is an evidential burden upon it to produce that evidence and explain how it correlates with the differential. Where that occurs, it is then for the decision maker to address that evidence fully and fairly (Footnote: ¹).

The argument that an adverse inference should have been drawn in this case rests upon the false premise that the criticisms made of the expert evidence (due to the failure of BT to generate the relevant data) were such that the CAT effectively dismissed that evidence altogether; but that, by contrast, the criticisms made by the CAT of the expert evidence of the CR were such that it was still entitled to material weight. This is not an accurate description of the approach of the CAT. The position it adopted towards the evidence was far more nuanced. When the CAT came to assess the Common Costs Starting Point, it rejected the opinion of the CR’s expert that the common costs were very low (and therefore increased the differential between Cost-Plus and price):

“We should add that in this context, there is no Common Costs Starting Point figure from Mr Duckworth which can feed into the analysis here. This is because the RFS contains no information on the split between incremental and common costs, and neither Mr Duckworth nor Mr Parker provided any estimation of BT Consumer common costs except to argue that they were very low. For the reasons given above, we do not accept that they were very low.”

With this in mind the CAT rejected the argument that it should draw an adverse inference from the failure on BT to generate the relevant data:

“663.

As set out above, and save on the question of direct costs, the methods employed by Mr Duckworth on the one hand and Dr Jenkins on the other, to reach a competitive benchmark are very different. Each model has been formulated and explained in considerable detail.

664.

That said, in oral closing arguments, Mr Beard KC somewhat downplayed the significance of Dr Jenkins’ SAC Combi test by characterising it as simply a sense-check to show that the RFS method was clearly wrong.

665.

While we must consider these competing methods in detail, we do accept the proposition that if the RFS methodology is fundamentally or inherently defective, then the CR’s case on Limb 1 is not going to be “saved”, as it were, because the SAC Combi methodology is also defective. This observation recognises therefore that the CR has the burden of proof.

666.

On the other hand, we also recognise that in relation to a number of arguments deployed by BT as to the inadequacy of the RFS methodology, it is important to ascertain whether such arguments are essentially speculative in circumstances where BT, had it so wished, could have adduced evidence of its own on the point but did not do so. We refer to this in paragraphs 676, 693, 703-704 and 715 below. Indeed, the CR invites us to draw appropriate adverse inferences due to the failure of BT to adduce relevant evidence - see paragraph 371 of its Closing. We do not think it necessary or appropriate to draw adverse inferences as such from the absence of such evidence. The simple point is that BT could have adduced relevant evidence and it did not, so such evidence is simply not there.

667.

For the above reasons, it makes sense, first to consider the RFS methodology and the criticisms made of it and then, in the light of that, the SAC Combi methodology.”

The CAT did identify weaknesses in the evidence of both parties but nonetheless felt able to rely upon parts of that evidence to a modest degree. In the lengthy analysis in the Judgment up to paragraph [897], the CAT critiqued the methodologies adopted by the competing experts. In paragraph [897] the CAT then observed that it did not reject either expert’s methodologies entirely and nor did it accept the submission of both parties that no reliance could be placed upon the expert methodology of the other party. In paragraph [898] the CAT made clear that it had to “strike a balance” based upon the “weight” that it considered “should be given” to the expert evidence on the central issues:

“898.

Instead, and perhaps unsurprisingly, we considered that, because each side’s methodology contained a number of problems, it is necessary to strike a balance in terms of the outcome that reflects the weight which we consider should be given to each methodology in respect of:

(1)

the starting point for common costs, being the proportion of BT Consumer’s total indirect costs that should be represented by common costs (“the Common Costs Starting Point”);

(2)

the proportion of such common costs that should be borne by SFV Services (“the SFV Services Common Costs Contribution”); and

(3)

the application of the 13.5% margin on the total costs of sale (“Application of Margin”).”

Even if the evidence of Dr Jenkins was, relative to data that could have been generated by BT, sub-optimal, this did not prevent the CAT coming to a judgment it felt was justified and it made clear that it had taken into account BT’s failure: see for example paragraphs [816] and [825]. At the end of the day the CAT applied critical analysis to the expert evidence, concluded that it was deficient in parts, and then accorded it such residual weight as it considered fit to arrive at a final conclusion. This approach to the evidence, including those parts it considered deficient, fell four-square within its ordinary discretion as the fact finder and as the evaluator of evidence. There was no breach of any principle relating to the drawing of adverse inferences.

Secondly, during case management no application was made to the CAT for an order that BT generate, in advance of the trial, the data relating to common costs which, it was clear, BT would have been able to perform at proportionate cost and effort. BT's intention to address the costs in issue through expert evidence, and not by the generation of new data, was evident from an early stage. The CR, for instance, could have applied for an order that the data be generated by BT and/or that that any expert instructed by BT should certify what assistance had been sought from BT and whether it was provided, etc. There are many different applications that might have been advanced. It is plain that the pre-trial preparation exercise was substantially an expert led exercise.

This does not without more imply a failure of case management on the part of the CAT, or that a lacuna in the evidence necessarily arose, because the default position was that the issue was covered by expert opinion evidence and then subjected, in the ordinary way, to the detailed, intensive and iterative pre-trial process whereby the experts met and sought to identify and thrash out areas of agreement and disagreement. That expert opinion was then, again in the ordinary way, subjected to the adversarial trial process including the now fairly common hot tubbing process for evaluating expert evidence which enabled the Bench to probe the evidence as well as permitting of cross-examination. Further, the CAT proactively required the experts to re-run their calculations upon the basis of alternatives put forward by the CAT itself: see Judgment paragraph [37] cited below.

In assessing the position of the CAT (as opposed to that of BT), in circumstances where no one seemingly considered it necessary that BT should, pre-trial, generate the data in question, it is more difficult for the CR to allege a failure on the part of the CAT. It is no answer to say that having heard the evidence during the trial, the CAT was critical of the evidence (in the event of both sides) because that assumes that what might have been a perfectly rational pre-trial case management decision, becomes a thoroughly bad one only at or after the trial, once the default evidence has been tested and deficiencies emerge. That is not how case management works. The applicant has not alleged or shown that the position adopted by the CAT pre-trial, whereby it was content that BT’s indirect costs be addressed by expert opinion alone, was irrational as outside the necessarily wide margin of discretion that must be accorded the CAT in relation to case management decisions.

The next complaint under this heading is about an alleged paucity of reasoning. Instead of rejecting Dr Jenkins’ evidence, the CAT relied upon it in determining the “Common Costs Starting Point” (Judgment paragraph [905]):

“In our judgment, the appropriate Common Costs Starting Point is £250m. This recognises the problems with Dr Jenkins’ approach which mean that in our view, even her low scenario common costs figure is too high.”

However, it is complained that the CAT cited no other evidence to explain how it reached this conclusion. It adopted Dr Jenkins’ low scenario estimate (of £250m) subject to a reduction of £12m (4.6%). The CAT does not explain why the problems with Dr Jenkins’ approach were cured by such a modest 4.6% reduction to her low scenario estimate.

I disagree. This is not an objection that the CAT failed altogether to adjust downwards the conclusions of Dr Jenkins but, rather, that it did not do so enough. It is an objection as to the weight the CAT attached to evidence. The CAT made its overarching approach to the expert opinions clear in paragraphs [37] and [38] where it acknowledged the differences and difficulties inherent in the analysis of the experts but also the contribution they made to the CAT’s own evaluative exercise:

“37.

We did face some difficulties with the economic expert evidence. This is because, in the case of many areas of dispute, the methodologies employed by each of the opposing experts were quite different. Perhaps because of this, at various points each party submitted that the other party’s line of analysis should be rejected entirely. As will be seen, for the most part, we did not rule out a line of reasoning as simply illegitimate per se but rather took account of possible defects so that our approach then blended the outcomes of the various models so to reach the appropriate outcome. Sometimes, for example with Dr Jenkins, she would produce a set of alternative outcomes or “sensitivities” which represented what, for her, was a more “conservative” outcome than her primary outcome. This, at least, gave us some alternative views to consider. In addition, on occasion, each side’s experts would “run” the other side’s expert’s analysis to see if it altered their outcome or not. Finally, and at our request, both sides produced alternative analyses using different figures for the purpose of the Limb 1 exercise. Here, that produced by the CR contained somewhat more variables than that produced by BT. All of this was useful, but it did not remove entirely the need, as we saw it, to consider outcomes that were not directly the product of either side’s approach. This is perhaps inevitable in cases of this kind where sets of figures, percentages and comparisons are so important and which are therefore highly fact and expert opinion sensitive.

38.

As for the experts themselves, as with BT’s lay witnesses, this is not a case where one side’s expert can be criticised as generally lacking credibility or relevant experience. All of the experts, but particularly Mr Parker and Mr Duckworth for the CR, and Dr Jenkins for BT, are highly experienced, both in their fields and in giving evidence to tribunals such as this. On occasion, all of them could be said to have strayed into arguing their case and losing objectivity, or speculating. In general however, the experts did their best to assist us. The economic experts had to deal with our numerous questions for each of the hot tub sessions (which we notified in advance) as well as cross examination, and the ground they covered was very extensive, as will be made clear below. Their professional and constructive approach to these exchanges during the hearing, even on matters where they disagreed with one other, greatly assisted us in reaching our conclusions on the core economic issues. We should add that we found the JES a particularly useful document.”

In relation to common costs the CAT explained its reasoning. It recorded that the baseline scenario used by Dr Jenkins as a starting point for BT Consumer common costs was £390m out of a total indirect cost figure of £983m (i.e. the former represented approximately 40% of the latter). The CAT observed that on Dr Jenkins’ low scenario such costs became £262m or 27% of the total indirect costs. There was no common costs starting point figure in the CR’s expert report nor even an estimation of BT Consumer common costs. The CR had limited his argument to contending that the common costs were “very low”, a proposition the CAT rejected. The judgment of the CAT was that the appropriate common costs starting point was £250 million which was below the low scenario postulated by BT of £262m and this conclusion took into account its analysis of Dr Jenkins’ opinion and the fact that her opinion was adversely affected by BT’s approach to evidence generation.

It is true that there is no more detailed explanation as to how the CAT arrived at the £250m figure. I do not accept, however, the criticism of the CAT which flows from this. There are two points to make:

In oral argument, Ms Kreisberger KC, for the CR, laid emphasis upon the fact that whilst BT failed to generate relevant data covering the alleged infringement period it had generated such data historically and the CR had relied upon this data but, inconsistently, the CAT then paid no real regard to the CR’s analysis of this material. I do not accept this argument. The CR relied upon regulatory financial statements (“RFS”) provided by BT to Ofcom for a period up to 2009. BT had been required to provide this data as part of its regulatory obligations as the possessor of statutory SMP (significant market power) which was the equivalence of dominance: see Judgment paragraph [145], [146], [513]. The CR argues that absent BT generated data, far greater weight should have been attached to the historical RFS data from which the CR extrapolated that the value of BT’s common costs to be attributed to SFV services was so small as to be irrelevant. In fact, the CAT examined the strengths and the weaknesses of RFS data in detail between paragraphs [663] – [780]. It concluded that the evidence did not establish that the common costs of BT Consumer were so insignificant as to be irrelevant. Equally, in paragraph [779] it rejected as “quite impossible” the argument of BT that the RFS model relied upon by the CR was “not fit for purpose”. The truth lay in between. The reliance that could be placed upon the data had to be “tempered”, in particular by the fact that: the outcomes advanced by the CR were built upon a limited data set from 2009; the up-rating by use of a CPI index, likely, under-estimated cost increases; and, the RFS methodology had no flexibility so far as recovery of common costs was concerned. The argument before this Court that the CAT erred in not attaching greater weight to this evidence is untenable. The detailed and thorough analysis of the CAT is plainly justifiable and, in fact, was not really challenged save in broad overview terms by the CR. But more pertinently this objection is one about findings of fact over which the Court has no jurisdiction.

The CAT observed that the CR did not cross-examine Dr Jenkins on her scoring exercise (Judgment paragraph [793]). The applicant says that this is indicates that the CAT justified its reliance, at least in part, upon the flawed evidence of Dr Jenkins because parts had not been subjected to cross examination. This is said to be an error for three reasons. First, the matter was thoroughly traversed in the hot-tub where Dr Jenkins conceded under questioning from Mr Ridyard, an economist panel member, that the exercise was based on her own judgment. Secondly, the PTR Order expressly provided for concurrent expert evidence and stated that the parties “will not be required to put their full case to the experts in cross-examination” and the CAT’s reliance upon the CR not cross-examining Dr Jenkins as a basis for giving weight to her evidence was therefore procedurally unfair. Thirdly, Dr Jenkins’ approach was thoroughly critiqued by the CR’s expert, Mr Duckworth, in his Second Expert Report and in the Joint Expert Statement.

I do not accept the point. It is unclear whether the CAT was merely recording the fact that there had been no cross-examination on the issue or whether it was treating the failure to cross-examine as supportive of the conclusion that Dr Jenkins’ opinion was entitled to some weight. In context, it is difficult to see that cross examination on the point in issue would have led the CAT to change its position on the evidence which had been tested during the hot-tub by Mr Ridyard, the experienced economist member of the panel, and subjected to detailed criticism by the CR’s expert. The applicants do not say that they were prohibited from cross examining the experts. At the end of the day this is a small point, and I cannot see that it could be material to the outcome.

Finally, the applicant argues that if this Court condones the approach of the CAT, it will set a bad precedent; there is a need for deprecation. I disagree. The discretion of a court to draw an adverse inference is not intended to be punitive. An important consideration is whether the failure obstructs the ability of the CAT to perform its role. Here, there is no indication that the CAT considered BT’s failure left it unable to cope. Of course, the CAT needs to be astute to the risk of litigants gaming the evidence preparation process. Here the CAT was aware of the risk that BT had declined, strategically, to generate potentially awkward data but instead instructed an expert and then deprived her of necessary help and assistance. That much was put forcibly by the CR in argument and addressed by the CAT. However, the CAT factored its criticisms of BT into its conclusions about the reliability of the conclusion of Dr Jenkins (see for instance Judgment paragraphs [816] and [885]). If the CAT had considered that it was materially hampered it could have gone further and drawn additional inferences erring even further on the side of the CR’s case, where there was a benefit of the doubt to be given. Alternatively, it could have accepted any estimates (if provided) provided by the CR upon the basis that they had not been responded to with directly relevant evidence from BT. In the event the CAT did not consider that it needed to go to these extremes.

This proposed ground is in substance a challenge to the factual and evaluative assessment of the CAT. It does not reflect what actually occurred and in any event does not approach the point of irrationality. I would refuse permission to appeal.

This is a Limb 1 issue, namely the computation of Cost-Plus. It is based upon the same factual matrix as Proposed Ground 1, namely the findings about common costs. The CAT held that “around” 40% of BT’s common costs should be attributed to the SFV services. It stated at Judgment paragraph [906]:

“Having established the size of the common costs within BT Consumer as a whole, the next task is to assess what proportion of that common cost can reasonably be recovered from SFV services. Looking at the picture overall, we consider that a reasonable balance is struck where SFV Services are permitted to recover around 40% of the total common costs. Here, we bear in mind that under Dr Jenkins’ SAC Combi approach, and applying an assumption of a 25% margin, the SFV Services’ contribution to common costs would be 62%. It would fall to 56% if a 20% margin was deployed (because of the way in which the margin is itself part of each SAC Combi calculation), and of course we proceed upon the basis of a 13.5% margin, which would suggest (using Dr Jenkins’ approach) a contribution to common costs of a little below 50%.”

The premise of the proposed ground of appeal is that a figure of c.40% is an overly generous attribution artificially swelling BT’s costs and reducing the differential between Cost-Plus and price thereby making it easier (than it should be) for BT to justify the differential as “fair”.

The applicant argues that the allocation of that 40%: (i) was irrational; (ii) misapplied the principles in BT v Ofcom [2011] CAT 5 (“PPC”); and (iii) was premised upon the Common Costs Starting point, which was itself vitiated by errors of law and was not supported by adequate reasons. The CR argues that it is clear from the words “we bear in mind”, in the third sentence of paragraph [906], that the CAT, in endorsing SFV Services Common Cost Contribution of 40%, relied improperly upon Dr Jenkins’ SAC Combi approach which suggested that SFV Services should make a contribution to BT Consumer’s common costs of “a little below 50%” where a 13.5% margin was used. Such reliance upon the SAC Combi approach was irrational given the CAT’s prior findings that SAC Combi was flawed and did not provide a credible or reliable basis for allocating common costs. The applicant cites the following:

With respect, the argument involves a conflation of “we bear in mind” with “we accept”, which is not how the CAT analysed Dr Jenkins’ report, as is clear from a reading of Judgment paragraphs [903]-[913]. These describe the CAT’s approach:

This was an exercise which attached a limited relevance and value to the opinion evidence of BT’s expert. The CAT arrived at its own conclusion which entailed striking a pragmatic balance between the views of both experts (as explained in Judgment paragraphs [37] and [38], set out above). This was classic, informed, guesstimation or the wielding of the broad axe. It was a proper approach to take.

The reference to the PPC case does not assist. There the CAT observed that in many cases a combinatorial test was impracticable because of the sheer number of combinations needed to be assessed. In Judgment paragraph [824] the CAT endorsed that view and concluded that Dr Jenkins’ approach was inconsistent with the judgment in PPC. The CR complains that given this recognition the CAT inconsistently then proceeded to endorse Dr Jenkins’ approach. The argument wrongly assumes that the CAT endorsed Dr Jenkins’ SAC Combi approach, as opposed, given its limitations, to using it in a limited way as a broad marker along the route to its own, independent, conclusion on how to allocate common costs. I do not see any inconsistency in this with PPC.

Proposed Ground 3 includes seven Limb 2 arguments designed to undermine the conclusion of the CAT that the differential between Cost-Plus and selling price was justified and hence fair. An overarching complaint is that the reasoning in the Judgment is conclusionary and unexplained because the CAT did not articulate any sense of scale or measurement of those items of value it accepted were relevant to justification, and did not therefore explain how or why BT’s arguments justified the differential.

The headings below are based upon the classification of the issues used by the applicant in written submission which are themselves based upon the proposed grounds (see paragraph [13] above). The arguments can be summarised as follows:

Before addressing individual objections, it is important to stand back. The complaints go to the evaluative Limb 2 exercise performed by the CAT as to the weight to be given to different strands of evidence relevant to value and justification. The applicant valiantly seeks to identify issues of law but cannot escape the fact that the CAT’s final analysis was, at its core, based upon the weight it gave to different pieces of evidence each of which was, by its nature, more or less impossible to attach quantified values to. The task of this Court is to decide whether the objection can properly be classified as one of law and insofar as it focuses upon questions of fact whether the finding was within the bounds of the CAT’s discretion. Where the challenge, for instance, is that the CAT irrationally ignored or gave insufficient weight to evidence adduced by the CR and/or gave too much weight to conflicting evidence from BT, that is not something an appeal Court can readily assess, not having sat through the 6 weeks of evidence, so as to have a proper feel or understanding for the evidence as a whole. The threshold for turning such a complaint into an appealable point of law is high.

The conclusions of the CAT about switching underpin many of the CR’s arguments. It is important at a number of key junctures. In respect of dominance, an issue was whether the significant degree of switching observed reflected a material constraint upon BT’s SFV market power sufficient to rebut the presumption of dominance which, otherwise, flowed from its persistent high market shares. On the facts the CAT held not. A further issue, this time relevant to Limb 2 and the proposed grounds, was whether customers attributed a value to SFV services over and above that attributed to the bundled service, the main comparable. The CAT considered whether there was capacity for switching and if there was whether there was evidence of non-switching and, if so, whether that reflected a deliberate decision on the part of consumers based upon an appreciation that there was incremental value attributable to the SFV relative to the comparable bundled service. The alternative was that non-switching reflected the fact that customers were captive to BT and had no choice but to pay the high prices.

The CAT prefaced its analysis with general observations about how to measure economic value and switching at paragraphs [956] – [962] where it explained what, in adjectival terms, it was seeking to identify and assess and also what sort of evidence could cast light upon that task. The CAT focused upon switching and non-switching, the intuition being that if a consumer had a choice to switch but chose not to, that might constitute evidence that, in relative terms, the consumer valued the SFV services over the bundled service i.e. it generated “distinctive” value. The CAT was clear that ultimately this was all a question of fact:

“The Extent or Level of Economic Value Required

956.

In evidence, Mr Parker adopted what we consider was too high a threshold for the existence of any relevant economic value, by using the expression “unique”. In the event, the CR, in his closing submissions, did not go so far. Rather, he contended that there needed to be some “distinctive” value provided. The expression “distinctive” derives not from United Brands or Phenytoin, which simply referred to whether the price bears a “reasonable relation” to economic value. As already noted at paragraphs 76-81 above, the expression was deployed in Hydrocortisone and we are content to adopt it in the way set out in paragraphs 82-83 above.

The Relevance of the ability to switch (or not)

957.

We have already noted the undoubted fact of extensive switching on the part of SFV customers either to other voice-only providers or (in more cases) to bundles, in paragraphs 163-177 above. We have also concluded that the principal reason for such switching was not as a reaction to the particular prices charged by BT but because of the secular trend away from voice-only services or separate voice and broadband contracts, towards bundles instead – see paragraphs 211-303 above.

958.

BT relies upon the ability of SFV customers to switch, and the fact of their switching, as a significant factor in the determination of unfairness or otherwise. This is not because it is some free-standing further economic value point in and of itself… Rather, BT contends that it suggests that since customers could (and did) switch, for those who stayed (while they stayed) they should be assumed to have ascribed positive economic value to their BT landline. …. This contention is then said to be supported by Dr Hunt’s evidence.

959.

On the other hand, Ms Kreisberger KC argued that the ability to switch is irrelevant at the Limb 2 because it has nothing to do with the economic value of the SFV Services.

960.

For our part, and as a matter of principle, we would accept that in theory, the ability to switch and the fact of switching (or not switching) can be relevant to economic value. For one thing, the fact that a product may have some additional economic value cannot itself be a defence to a claim based on unfair pricing if the customers are in a truly captive market in all respects and have nowhere else to go. This is the essence of the Willingness to Pay fallacy. In such a case the excessive price will not bear a reasonable relation to its economic value. On the other hand, if the customers are not captive, then it would be easier to ascribe a reasonable relation to the underlying economic value…

961.

Put another way, it may be possible to infer that those who stay with the product have actively chosen to stay (since it was open to them to switch but they have not) because they subjectively attach a positive value to the product or the brand. Of course, all of this depends on the facts and the whole question of the existence or otherwise of customer inertia here (dealt with below); but in principle, we consider that the phenomenon of switching can be legitimately relevant in this way.

962.

Beyond stating those principles, it seems to us that the existence of a reasonable relation to economic value (or not) is highly fact-sensitive, as well as being a matter for the exercise of judgment. The resolution of this question also depends, of course, on the extent of the excess of the price over the competitive benchmark because the particular price is the “thing” which must bear a reasonable relation to the economic value.”

The CAT also addressed the issue at paragraphs [1099] – [1134]. There the CAT focused upon how “engaged” customers were and the extent to which they were able, freely, to form an assessment of the relative value of the BT SFV services. The dividing line between the parties was set out in paragraphs [1101] – [1102]:

“1101.

… The key question is the extent to which it can be said that those who (at any time in the claim) did not switch thereby made a positive or deliberate choice to stay, and in that sense were sufficiently engaged, as opposed to being simply inert and disengaged so that no inference of any attribution of value could be made from them staying. We should add, of course, that merely because customers were engaged, it does not necessarily establish the relevant level of economic value, but it does at least enable an inference to be made that they were capable of making a positive choice to stay because of the value ascribed for example to the BT brand - if this is what they did.

1102.

The CR’s position is that little or nothing can be inferred as to a positive choice to stay because the customers were indeed generally disengaged. It is important to note that this is not because the Class Members as a whole are considered to have some particular vulnerabilities or characteristics as a class. Professor Loomes specifically eschewed this approach. Rather it was because of what can be said from a behavioural economics point of view about how consumers act (or not) generally. Dr Hunt, for his part, noted that VOCs were generally in an older demographic … for the purposes of his analysis of their engagement, and of course BT made reference to their age demographic in the March 2019 Survey.”

In paragraphs [1103] – [1134] the CAT considered a series of evidential questions: levels of engagement amongst class members who later switched suggesting that they were not inert and were prepared to explore options; the reasons for switching and whether it was price or quality driven or, alternatively, was part of a “secular trend” towards bundled services; whether SFV customers were captive and whether there were barriers preventing them taking alternative options; whether there was a “rump” of consumers who were immune to switching and, if so, as to their prominence within the class; the different forms of stimuli or “triggers” to customers which might prompt customers to question whether there were incremental benefits which flowed from the SFV services, etc.

The final conclusion, on the facts, was that there was a substantial number of customers who were not inert (i.e. were capable of switching) but who remained loyal to the BT SFV brand, even though switching was a continuing phenomenon:

“1134.

Overall, and in the light of the matters referred to above, we consider that it seems likely that a substantial number of those who stayed (while they stayed) probably did so out of a sense of loyalty to a brand to which they had been attached for probably many years. They were not generally inert, as is shown by the fact that most of them (eventually) did switch, and all the indications suggest that those who remained SPCs are continuing to switch to bundles, as there were 1.87m such customers in 2014 and only 0.49m by 2022.”

The CAT was not able to determine whether non-switching was attributable to particular features of the SFV services offered by BT. Its conclusion was more generic and concerned value generally. Equally, the CAT was not able to turn its findings into precise values. It treated evidence of non-switching as a proxy for determining whether it was possible to conclude, in a broad sense, that some material cohort of consumers did value features of the SFV service over and above those offered by BT in the comparable bundles market. I turn now to the individual complaints.

The first complaint is that the CAT wrongly took into account that the differential (between Cost-Plus and price) was “dramatic[ally] different from that alleged by the CR”. It is said that this arises from Judgment paragraphs [933] – [934] where the CAT focused upon the difference between the calculation of the CR of the differential and its own conclusions on the issue and observed that the difference was dramatic. The CR says that this conclusion was immaterial to any part of the proper legal analysis and downplayed the absolute scale of the overcharge across the claim.

I disagree. In the paragraphs complained of the CAT did no more than observe that, for the purpose of its (i.e. the CAT’s) analysis of whether the differential was fair, it could not accept the starting point of the CR, which was that the average was 78%. The CAT observed, in paragraphs [932] – [934], that the difference between the claim of the CR and its own findings of an average of 38% was “dramatic” and the consequence of this was to reduce the ability of the CR to say, based upon its (i.e. the CR’s) own rejected analysis of the differential, that the extent of the excess was so substantial that it either entailed unfairness in and of itself or, in any balancing exercise that would be a strong factor against BT. When paragraphs [932] – [934] are read in the round the point made by the CAT was logical and correct. Given the scale of the difference between the conclusions of the CR and the CAT, the CR could not continue to raise arguments predicated upon his own rejectedanalysis.

The proposed ground alleges that the CAT failed to consider or address two relevant matters. As drafted this objection is answered by the conclusion that the CAT did, in fact, consider and address these matters, at some length. The two complaints are:

As a general proposition it is common ground that what happens in a comparable, workably competitive, market might be relevant even in a Cost-Plus case (which is itself a means of seeking to determine what prices should be charged in a workably competitive market, see e.g. Cinven (ibid) paragraph [77]). Such evidence is different in nature to evidence of value. But it is certainly relevant to that evaluation. For example, it can shed light on the features of a product or service that a consumer might treat as valuable and/or it might indicate whether in a competitive market price congregate around some measure of cost or Cost-Plus or, otherwise, include some level of incremental profit. For example, in Cinven (ibid) the CAT benchmarked its Limb 2 conclusion (on the lack of justification for the differential between Cost-Plus and selling price) for the drug Liothyronine, against the selling price of the drug charged in comparable, competitive, markets, where they tended to congregate around Cost-Plus. The prices charged by the dominant undertaking were ten times (and more) above those in the comparable markets relied upon by the CMA and CAT, which the latter held were relevant and meaningful. The CAT rejected the competing contentions of the defendant undertakings as to how prices behaved in competitive markets.

There are two points to make about the CR’s criticism.

First, in the present case the CAT accepted that, in principle, observable features of a competitive market could guide the approach to Limb 2 of the Cost-Plus test. Such a conclusion is consistent with established case law. The CAT did in the Judgment address the value of the SFV services relative to the bundled service. The analysis of non-switching (see above) was specifically designed to test this relationship and that analysis formed an important component of the CAT’s findings on value. It is accordingly incorrect to say that the CAT failed to address the issue.

Secondly, as to the argument that there is inconsistency between the finding that there was dominance and the finding that the persistently high prices were justified, this is a non-sequitur. There is no automatic or inevitable correlation between the two propositions since it is possible for there to be dominance and for prices to reflect value. Indeed, that is the premise behind the Limb 2 test; prices above Cost-Plus can be lawful when charged by an undertaking in a dominant position. On the evidence the CAT explained in detail why evidence of switching was consistent with the finding of dominance but also consistent with the finding that some value was attributed to the SFV services which was incremental to that attributed to the comparable bundled service. These were conclusions made by the CAT on the facts, and they are not mutually exclusive.

This complaint challenges the finding of the CAT that BT’s prices did not have to centre around Cost-Plus such that any price above that marker was abusive. The terms “price and cost dispersal” refer to the fact that in a competitive market there might be a range of prices charged by the competitors, and a range of margins because different competitors have different cost structures and in consequence different profit margins, even if they charge similar prices. In paragraph [1152] the CAT explained:

“The premise for this point is that in many workably competitive markets there will be a range of cost levels among rival firms and if the equilibrium market price needs to cover the costs of the marginal source of supply, this will often mean that at the workably competitive price level, lower cost sources of supply (and lower cost suppliers) will earn returns in excess of that minimum level. One instance where this phenomenon can apply is in markets where there are significant economies of scale due to the existence of some fixed costs. In such markets, the more suppliers there are, the higher will be the price that is required to remunerate the costs of the firms that compete within it. This can give rise to a trade-off between the advantages that more suppliers can create for more rivalry and competition in a market, and a disadvantage associated with more suppliers increasing total industry cost. the detail of this basic proposition (which we did not understand to be in dispute) ….”

In Judgment paragraph [1139] the CAT summarised the argument of the CR:

“There was, however, some divergence as to how this workable standard should be applied, with the most important difference between the parties being their view as to whether firms could earn profits in excess of the competitive level in conditions of workable competition. Specifically, Ms Kreisberger KC for the CR claimed that workable competition involved the market price being driven down to a level of zero excess profit. In her oral closing she submitted that in a workably competitive market, the price will be driven down to cost-plus, so zero economic profits, but if the firm could point to some unique feature that distinguishes it from the market, then it may be able to put its prices above cost-plus.”

BT argued that applying a benchmark of workable competition was consistent with a wide range of prices and price-cost margins and “…it certainly did not entail a zero profit constraint, which was a standard associated only with perfect competition.” (Judgment paragraph [1140]). The CAT concluded (Judgment paragraph [1141]) that the approach adopted by BT was the correct one and that the zero profit presumption advocated by the CR was “unrealistic”. It added, however, the important caveat that there were limits to the inferences that might properly be drawn from observable trends in a comparable market: “Of course, this does not justify an ‘anything goes’ approach to the definition of workable competition and we bear that in mind.”

The CAT tested whether there was evidence from a relevant comparable market to suggest that there was actual dispersal (Judgment paragraphs [1145] – [1158]). It examined the adjacent bundles market and held that price and cost dispersal was evident in the market. The CAT then accepted that because in the comparable market there was a range of prices, with varying margins above cost, this supported the argument of BT that a fair price was not one pegged to Cost-Plus:

“1156.

… In other words even in the case of putative workable competition in the SFV Services market, there can be variations, perhaps significant variations, in the profitability of essentially the same service, sold by different suppliers. It would then be unreasonable and unfair to penalise BT, simply because of its lower cost base.”

The CAT rejected the CR’s response that BT enjoyed cost advantages because of its position as the legacy statutory monopoly provider of telephone services, not because it had achieved market power through innovation or investment which took years to recoup and that there was nothing unfair about disregarding the fact that BT had lower unit costs than its competitors. The CAT rejected this argument as “over-simplistic” (Judgment paragraph [1156]) given that BT had been privatised some 40 years ago and then went through a long period of regulation where it became free of certain control in 2006 and other restraints, including being unable to sell bundles, in 2009. It had remained under regulatory scrutiny since and there was no evidence of “regulatory failure”.

There is nothing wrong with the CAT’s approach or reasoning. The evaluation of the evidence in the paragraphs cited is rounded and balanced. There is no principle of law or economics which requires the prices of a dominant undertaking to pivot around Cost-Plus. There might be some markets where on the facts this will be so but, equally, there may be markets where a margin above Cost-Plus is evidentially justified. If it were otherwise there would be no point in the Limb 2 test, which has been part of case law for over 50 years.

The criticisms of the CR are really disputes about the way in which the CAT found, and drew inferences from, facts and amount to no more than that the CAT did not accept all of the CR’s arguments. For instance, it is said that that CAT erred in its analysis of price dispersal evidence in the comparable market because it misinterpreted the Ofcom Pricing Trends Report (Judgment paragraphs [1146] – [1150]) evidencing price dispersion between suppliers. The CR says that each line in the table depicted the average price offered by six providers, distinguishing only between standard and promotional prices across the market and the CAT therefore relied on an irrelevant consideration. This is a dispute about the evidence but in any event the relatively broad conclusions drawn by the CAT from the data analysis in those paragraphs seem perfectly rational. The same applies to the argument that the CAT erred in law in its treatment of cost dispersion at Judgment paragraphs [1154] – [1157] where it stated that firms in a workably competitive market can have a range of cost levels and a range of profit levels and that BT had a “lower costs base” and “lower unit costs” than other firms. The CR objects that the CAT (i) failed to conduct a relative evaluation of purported cost differences between BT and its rivals; (ii) failed to conduct any measurement or meaningful evaluation of whether the purported cost differences justified the excess; (iii) instead wrongly assumed that BT enjoyed cost efficiencies which justified the excess; and (iv) failed to explain how/to what extent “this second element of dispersion also counts against a finding of unfairness.” It is complained that BT adduced no evidence that it was more efficient than its rivals and the CAT carried out no analysis of BT’s costs efficiency relative to its rivals: Mr Parker (for the CR) observed that he was “not aware of any reason to suggest that BT was more efficient than rivals” and that, if anything, he suspected “that BT consumer is likely to be less efficient than rivals”; BT’s Written Closings stated that cost efficiencies had not been “the focus of evidence in these proceedings”, save for whether BT’s rivals were likely to have had materially higher customer acquisition costs given BT’s dominance and legacy customer base. All of these are factual disputes and simply reflect disagreement with the CAT’s findings. The arguments do not moreover reach the point at which they could be recast as appealable points of law.

In fact, the conclusion of the CAT was limited. It held only that because prices in a competitive comparable market did not centre upon Cost-Plus, one would not expect BT to charge at or close to Cost-Plus when pricing SFV services. The point goes to no more than indicating that in the SFV market a price above Cost-Plus might (not would) be fair. BT’s argument opened the door to additional evidence of value and refuted the CR’s contention that the only fair price was one centring upon cost/Cost-Plus. The CAT did not, for instance, go further and say that in the SFV market BT could charge any price whatsoever that a non-dominant undertaking in the bundles market could charge, or get away with - the “anything goes” approach (see paragraph [65] above). The limited approach adopted by the CAT accords with economic as well as legal logic. In some workably competitive markets fair prices might be cost based; but in others they might not. There is no rule or governing principle in play; it is all about the facts.

The CR raises two arguments about the so-called Willingness to Pay fallacy. The fallacy is to assume that because a consumer chooses to pay for a good or service supplied or provided by a dominant supplier, the price must be fair. This was addressed by the Court in Phenytoin. There the Court established that:

The first criticism is said to arise from Judgment paragraphs [960] – [961]. The CR says that in paragraph [960] the CAT wrongly concluded that the fallacy was confined to cases where there is a truly captive market and customers have nowhere else to go such that where customers are not “truly captive” it is possible to infer that those who stay with the product have actively chosen to stay since they have declined the option of switching. This involves, argued the CR, an error of law because the fallacy is not confined to cases where customers are captive and have no alternatives (i.e. monopolies) but applies also to cases of dominance falling short of monopoly. It is helpful to set out the section of the Judgment in which the two criticised paragraphs are found:

“The Relevance of the ability to switch (or not)

957.

We have already noted the undoubted fact of extensive switching on the part of SFV customers either to other voice-only providers or (in more cases) to bundles, in paragraphs 163-177 above. We have also concluded that the principal reason for such switching was not as a reaction to the particular prices charged by BT but because of the secular trend away from voice-only services or separate voice and broadband contracts, towards bundles instead – see paragraphs 211-303 above.

958.

BT relies upon the ability of SFV customers to switch, and the fact of their switching, as a significant factor in the determination of unfairness or otherwise. This is not because it is some free-standing further economic value point in and of itself… Rather, BT contends that it suggests that since customers could (and did) switch, for those who stayed (while they stayed) they should be assumed to have ascribed positive economic value to their BT landline. … . This contention is then said to be supported by Dr Hunt’s evidence.

959.

On the other hand, Ms Kreisberger KC argued that the ability to switch is irrelevant at the Limb 2 because it has nothing to do with the economic value of the SFV Services.

960.

For our part, and as a matter of principle, we would accept that in theory, the ability to switch and the fact of switching (or not switching) can be relevant to economic value. For one thing, the fact that a product may have some additional economic value cannot itself be a defence to a claim based on unfair pricing if the customers are in a truly captive market in all respects and have nowhere else to go. This is the essence of the Willingness to Pay fallacy. In such a case the excessive price will not bear a reasonable relation to its economic value. On the other hand, if the customers are not captive, then it would be easier to ascribe a reasonable relation to the underlying economic value. This reflects what Dr Jenkins said at paragraph 6.104 of HJ2, referred to at paragraph 690 of BT’s Closing.

961.

Put another way, it may be possible to infer that those who stay with the product have actively chosen to stay (since it was open to them to switch but they have not) because they subjectively attach a positive value to the product or the brand. Of course, all of this depends on the facts and the whole question of the existence or otherwise of customer inertia here (dealt with below); but in principle, we consider that the phenomenon of switching can be legitimately relevant in this way.

962.

Beyond stating those principles, it seems to us that the existence of a reasonable relation to economic value (or not) is highly fact-sensitive, as well as being a matter for the exercise of judgment. The resolution of this question also depends, of course, on the extent of the excess of the price over the competitive benchmark because the particular price is the “thing” which must bear a reasonable relation to the economic value.”

The analysis in paragraph [960] is a conventional way of describing the fallacy. The concept of “capture” is a reasonable term to use in context. Whether the price paid by a consumer reflects compulsion or free choice is a matter of fact and degree. It does not turn upon whether the supplier is dominant. There may be scope, even within dominance, as the CAT found upon the facts, for consumers to exercise some significant degree of choice such that non-switching can be viewed as a genuine exercise of selection (not compulsion) and for that to lead to an inference that consumers perceive there to be incremental value in the SFV services (which they have not turned away from). If, for example, an undertaking is a monopoly supplier of an essential good or service then the consumer simply pays up or does without to its obvious detriment. In such a case dominance might be synonymous with an absence of switching and to assume that the fact of payment suggests full value and free choice would be fallacious. But at the other end of the dominance scale the situation is more nuanced. If a dominant supplier has a market share of (say) 45% that might well allow for a significant degree of switching (with the residual 55%) and a decision to pay the proffered price might reflect choice. In such a case, the fact that the consumer paid up might well reflect real choice and it would not engage the fallacy for the CAT to so conclude. In the present case the position was complex. The CAT found dominance by applying the legal presumption of dominance for high market shares at the same time as finding evidence of substantial switching. As the CAT emphasised (cf paragraphs [961] and [962]), all this demonstrated was that the inferences that might be drawn from a consumer’s decision to pay a dominant price would be fact and context dependent. The CAT made no error of law. It did not assume fallaciously that because the price was paid this reflected an appreciation of value, instead of compulsion; to the contrary it made that finding on the evidence.

The second part of the Judgment where it is said that the CAT erred is paragraph [1135] in relation to switching. The CR says that the CAT swallowed the fallacy when assessing the evidence on switching:

“Conclusions on Brand Value

1135.

Overall we consider that there is significant evidence that the SFV customers as a whole did engage with their SFV products. We cannot possibly identify the individual motivation of each and every customer, and the evidence and interpretations offered by the experts, unsurprisingly, did not yield a definitive picture. However, for those who remained BT SFV customers (or while they remained), we consider there is sufficient evidence that for at least a substantial number, their decision to do so implies a degree of positive value that they attached to the BT brand.”

The applicant focuses upon the phrase “… implies a degree of positive value that they attached to the BT brand”. The applicant places this in the context of prior findings made by the CAT in paragraphs [1104] – [1134] in relation to value and switching. It breaks down the CAT’s findings and conclusions as follows:

“(i)

some SFV customers switched to bundles; (ii) such switching was not driven by quality or price but was part of the secular trend (J1104); (iii) a rump of SFV customers never switched (mainly VOCs) (J1105); (iv) it “appears especially odd” that more SPCs did not switch given the price benefits of moving to a bundle (J1131); (v) the “upshot” of their preference “simply … to stay with the supplier they had known for a long time” was to ascribe “a degree of value” to BT (J1132); (vi) despite this evidence being based on “a degree of speculation on the part of both experts”, the CAT’s view was that the speculative evidence “favours BT” (J1132). On the basis of those steps, the CAT concluded that “overall … it seems likely that those who stayed (while they stayed) probably did so out a sense of loyalty to a brand to which they had been attached for probably many years” (J1134).”

It is said that this reveals errors. First, the CAT inferred economic value from the retention by BT of SFV customers in the face of excessive pricing which is the fallacy in action. Secondly, the inference of economic value from non-switching was contradicted by the earlier assessment on the part of the CAT of switching in relation to market definition as set out in Judgment paragraphs [211] – [303] where the CAT held that SFV customers who switched to bundles did so as part of changing consumer preferences for the convenience of bundles whereas those who did not switch were those with the highest willingness to pay or the lowest ability to switch. The applicant summarised his point thus: “In other words, SPCs continued to pay SFV prices because they were insensitive to price competition, not because they perceived some particular value in SFV services which justified the high price”.

I disagree. This is a variant of the first point and boils down, yet again, to the CAT’s analysis of evidence concerning switching. The CAT set out the evidence at length. In Judgment paragraph [211] the CAT observed that there was “on any view” significant switching away from SFV based upon the evidence set out in paragraphs [163] – [176]. Nonetheless, this was not a sufficient competitive threat to BT to prevent it from being found to possess dominance in the SFV market. It was accordingly a relevant question for the CAT to ask why the customer persisted in taking supplies from BT at a premium price? Was it because the customers had no choice being unable to switch from the dominant BT and had no choice but to pay up, as the CR argued? Or, was it because some portion of the excess over Cost-Plus reflected incremental value that customers appreciated and were prepared to pay for? The CAT answered the latter question in the modestly phrased affirmative – there was “… a degree of positive value”. This was a finding of fact premised upon a prior evidential conclusion that there was material freedom for customers to choose to stay with the SFV services. It was a finding of fact within the CAT’s discretion and does not reflect the Willingness to Pay fallacy. There is no law involved in this argument.

The next objection is a narrow point that, in the manner in which the CAT formulated the test in the Judgment, it wrongly equated value with mere difference from other offerings, which is said to be unprincipled and unsupported in case law. This is said to arise from Judgment paragraph [83] which stated:

“Subject to the caveat just mentioned (Footnote: ²), we would adopt the concept of distinctive value as a useful yardstick by which to measure that value in the product which is different to its cost (as established for these purposes by the relevant competitive benchmark under Limb 1) and which is something in some way different from the offerings of other sellers, but which can include the brand or other value ascribed subjectively by the customer for the product, as distinct from the product’s particular features. In that regard, innovation in its features is not necessary if they are perceived by the customer (subjectively or objectively) to amount to a better quality product in some way. We did not understand BT to disagree with this proposition; see, for example, paragraphs 175-177 of its Opening and paragraphs 683-688 of its Closing. We would add that, in our view, the assessment of distinctive value (or not) is highly fact-sensitive and involves a considerable amount of judgment (as noted in paragraphs 65 and 66 above).”

I do not accept this criticism. The CAT eschewed a definition based on product differentiation simpliciter. A difference relative to other products is not itself a meaningful barometer of consumer value. Just because a dominant undertaking can point to some different features of its product does not mean that those features translate into value acknowledged (even subjectively) by consumers. The CAT did not, however, make that error in paragraph [83] when it described its “useful yardstick” of “distinctive value” and which made clear that it was a relative concept addressing the relationship between value in the bundles market relative to that in the SFV market. In Judgment paragraph [78], in similar vein, it approved the following, relative, test for distinctiveness: “… any definable aspect of a Seller’s offering that adds value to the Buyer, in the sense that this aspect represents something that Buyers wish to purchase from that Seller in contradistinction to the offerings of other Sellers; and for which the Buyer will pay a premium”. I can identify no error of principle in the formulation of distinctive value by the CAT in the Judgment.

The next issue concerns “Gives”. These are product features which are add-ons to the landline. At Judgment paragraphs [963] – [1032] the CAT identified the five Gives relied upon by BT: (i) Onshoring of customer call centres; (ii) Call Protect; (ii) Care Level 2 / Fault Fix Guarantee; (iv) Right Plan; and (v) Caller Display. These Gives formed a central part of BT’s case on value. The CAT held that three (Onshoring of customer call centres, Call Protect, and Care Level 2 / the Fault Fix Guarantee) had distinctive value and were relevant to justification and fairness.

The applicant says that the CAT erred:

I do not accept these arguments. I take each in turn.

Double counting: There is no evidence from the Judgment that there was double counting. In relation to each Give the analysis of the CAT was directed at identifying value over and above Cost-Plus. There is nothing indicating that any increment recognised by the CAT as relevant to the Limb 2 test had already been factored into the Limb 1 analysis.

Rationality: This is an argument based upon findings of fact about the evidence, not law. The CAT (i) evaluated the weight to be given to each Give; and (ii) addressed the extent to which SFV customers accorded incremental value to features of the service relative to the comparable. As to the weighing of each Give, a fair review of paragraphs [963ff] reveals that: the parties and in particular BT addressed each Give in witness statement and other evidence; there was cross-examination on each item; the CAT was able to form a conclusion in broad terms on each item including whether, for instance, the Give was innovative (or not) and/or was introduced ahead of similar moves by rivals. For example, in relation to Onshoring of Customer Call Centres the CAT concluded (Judgment paragraph [973]): “We accept that this Give was not technically innovative as such, but this does not prevent it from having some real positive value for customers, which was achieved ahead of the competition, and we consider that it did”. In relation to Call Protect the CAT (Judgment paragraph [987]) concluded: “Overall, we consider that there was real and positive value to Call Protect, even though customers had to take the step of reporting the scam and nuisance calls made to them. In our view, the value extends beyond the active users, i.e. those who had reported a nuisance call which was then blocked, and indeed beyond those who had registered for the service. This is because such customers had the reassurance that there was a free service from which all received protection.” In relation to Care Level 2/Fault Fix Guarantee the CAT concluded (Judgment paragraph [995]): “Overall, we consider that there was positive value here although, it did require the customer to take action first, and it was not in place for the whole of the claim period”. In other cases, the CAT recognised that there might be some limited utility but nothing of materiality or real significance (e.g. in relation to Right Plan - Judgment paragraph [1005]) and in others it was found that there was no value at all of any note (e.g. Caller Display - Judgment paragraph [1010]). The CAT was unable to arrive at a detailed measurement of value. It was sufficient for it to arrive at a broad conclusion as to the existence, or otherwise, of “some” value. In the absence of a sensible ability to quantify value the CAT had to exercise its judgment in factoring the Gives into an overall assessment of fairness and justification. As to the submission that the CAT did not identify incremental value over and above that attributable to the bundled service this is answered by analysis of non-switching (see paragraphs [51] – [56] above) and the CAT’s finding that there was evidence that justified the inference that consumers attributed value to the SFV services and this must, inferentially, have included certain of the Gives.

Failure to give adequate reasons in relation to the final conclusion: The CR complains that the CAT failed to quantify the values and other matters taken into consideration and that, therefore, it is impossible to know how or why, cumulatively, they justify the differential. Even if the CAT correctly attributed some value to each item that does not mean that they, necessarily, justified a differential of the magnitude found to exist; they might all be de minimis. It is correct, as the CR observes, that the CAT did not, in its Judgment, articulate a final reckoning or tallying up, even if only in narrative or adjectival terms, of the items to which value had been attributed to arrive at the conclusion that they justified the differential. It is though clear that the CAT did conclude that these items were sufficient, collectively, to justify the differential, because they said so in paragraph [1270]. Does it matter that there is no, less conclusionary, more articulated, final tallying or reckoning? In my conclusion the answer is “no”, at least in this case. There are two points to make:

First, the extent to which reasoning is required is governed by context. The concept of a “reasonable” relationship between value and selling price recognises that the decision maker might not be able, with any degree of precision, to match value precisely to selling price. What the decision maker has to do is form a judgment as to whether there is a reasonable relationship between the cumulative value of relevant features and the selling price. It is possible to put the issue into context. In the Judgment the excess of selling price over Cost-Plus is summarised in the table at paragraph [925]. For example, in 2015/16 Cost-Plus was £15.90, and the monthly ARPU was £21.86, a difference of £5.96. For that period BT's arguments on fairness hence had to establish a reasonable relationship between the sum total of the facts and matters relied upon as justification and a monthly figure of £5.96.  Some very broadbrush measure of the nature of the exercise can be gleaned by dividing the differential with the number of items to which a value is attributed. So, if the CAT finds a differential of £6 and four features are found to have value then one way of looking at fairness is to ask whether consumers would have paid £1.50 over Cost-Plus per matter identified as valuable. That admittedly crude and oversimplified approach does at least provide some indication of the scale of the task facing the CAT when seeking to pull the value strands together. The process can be contrasted with that of the CMA and CAT in Cinven (ibid) in relation to the drug Liothyronine where the Cost-Plus was £4.94 per box but selling prices increased, over time, from c.£4.00 per box (i.e. at or around cost) to £247 per box (a margin of c.6000% above Cost-Plus). The defendants therefore had to explain away a differential of up to £243 per box in circumstances where: the comparables indicated that a price circling around cost/Cost-Plus was the norm; the drug amounted to old, well established, chemistry which was cheap to produce, for which no real innovation was required; and, where there was a medically fixed demand and price inelasticity. The task facing the defendants in bridging such a value gap was Sisyphean. The defendants sought to advance a case based upon medical benefits. The judicial answer was predictable, crisply articulated, and limited to a conclusion that the alleged benefits were disproportionately small and did not justify the price increases (see Cinven (ibid) paragraphs [115] – [118], [124]). The present case is at the other end of the spectrum. The gap is (relatively) modest but the facts and matters relevant to value and the bridging exercise are imprecise and largely unquantifiable. Because so much of the evaluation is based upon skilled estimation the CAT might need to build into its assessment a margin of error. If, applying the broad axe, the CAT finds that the differential is 50 units but that the sum of the features having value is 44 units, would it have then found abuse to the tune of 6 units? Perhaps not? In a perfect, hypothetical, world where everything was measurable and all calculations possible, the real or true value might turn out to be 47.5 units and it might be questioned whether an excess of 2.5 units over value warranted a finding of abuse? Catering for such possibilities is all encapsulated in the concept of reasonableness and affect the level of detail that the CAT can give in its reasoning.

Secondly, and having said all of this and bearing fully in mind the uncertainties surrounding the exercise, it would have been useful in enabling this Court to navigate through the very complex and detailed analysis, to have had at least some narrative explanation of how features or items identified as having value combined and related to the differential and also how they related to the equivalent valuation in the comparable market and whether the CAT factored in some margin of error, etc. However, I cannot see that this omission alters anything and, for the reason given, I stop short of saying that its absence from the reasoning amounts to an arguable error (as opposed to a crie de coeur from an appellate court).

The next issue concerns the way in which the CAT addressed the extent to which the BT brand could attract some value relevant to the Limb 2 evaluation. I start with 6 evidential propositions about brands which might be relevant to a Limb 2 analysis:

The CAT addressed the issue of brand value in the SFV sector relative to that in the comparable in Judgment paragraphs [1033] – [1135]. It considered: Net Promoter Scores (NPS) (paragraphs [1034] – [1072]) which measured consumer experiences; material generated by Ofcom including survey evidence (paragraphs [1074] – [1098] designed to shed light on whether consumers viewed BT’s SFV service as particularly reliable and trustworthy and thereby reflective of brand value; and switching (paragraphs [1099] – [1134]). The analysis is granular, and the CAT formed different conclusions about probative value in relation to each category of evidence. It arrived at a highly qualified final conclusion:

“1135.

Overall we consider that there is significant evidence that the SFV customers as a whole did engage with their SFV products. We cannot possibly identify the individual motivation of each and every customer, and the evidence and interpretations offered by the experts, unsurprisingly, did not yield a definitive picture. However, for those who remained BT SFV customers (or while they remained), we consider there is sufficient evidence that for at least a substantial number, their decision to do so implies a degree of positive value that they attached to the BT brand”.

The CR argues that the CAT erred by: (i) double counting the value of the BT Brand given that it was already included in the Cost-Plus benchmark; (ii) failing to explain why it nonetheless considered a further attribution of value to be justified; (iii) failing to explain why or how the BT Brand could be a source of economic value which justified the SFV prices given the BT brand was available to bundled customers at competitive prices; and (iv) failing to measure or fairly evaluate brand value or to consider whether the “degree of positive value” it identified was capable of justifying the entirety or some proportion of the excessive prices demanded.

The criticisms do not reflect accurately the reasoning of the CAT.

There is no evidence that the CAT confused the Limb 1 and 2 analyses. The evaluation of brand was quite distinct from any assessment of the cost of generating the brand. The analysis focused upon how to identify the existence of incremental value attributed to brand (i.e. discrete from the Cost-Plus measurement) but also, and importantly, how to identify relative incremental value, comparing and contrasting brand valuation in the index and the comparable markets. The valuation, in law, of fairness is measured by reference to the differential between Cost-Plus and selling price in the index market, not prices pertaining in a comparable market. But the prices charged in the comparable market and the inferences that can be drawn from those prices about value in the index market are certainly significant evidence going into the mix. If a dominant undertaking contends that branding is valued at 10 units (i.e. above Cost-Plus) in the index market but in the comparable market the CAT finds that it is valued at 5 units, the implication could be that a floor value of 5 units can be treated as going to the justification of the differential between Cost-Plus and price in the index market. That does not however rule out additional value (i.e. over 5 units) being attributed to brand in the index market if the defendant can adduce evidence that the value there is higher. The thrust of BT’s evidence, in relation to all components of value, including therefore brand, was along these lines. It was that Class Members expressed high degrees of satisfaction with SFV Services and their assessment was a relative one, i.e. when compared to dual play branded service. For example, they: “… valued the reliability of their landlines more than dual-play customers” (Judgment paragraph [1074]). Contrary the CR’s submission the CAT was plainly aware that the issue was whether value in the BT brand in the SFV services was different to that attributed to the BT brand in the comparable, bundles, market.

As to the criticism that the reasoning is lacking and the conclusion unexplained the evidence was mixed and did not enable the CAT to place a precise or even a rough value upon brand value or explain whether brand accounted for all or only a portion of the differential. The CAT was however able to conclude that there was “significant” evidence that indicated “…a degree of positive value” (Judgment paragraph [1135]). It is clearly implicit that this conclusion was a relative one, namely the “degree of positive value” was over and above that attributed to the brand in the comparable market. It is hard to see, when the evidence cited and closely examined by the CAT is borne in mind, that it could have been more specific in its reasoning than it was. For reasons already given above to demand more by way of precision would be to impose a probatio diabolica upon the CAT i.e. a burden which is nigh on impossible to satisfy.

As to the suggestion that there is double counting between brand and other features of the SFV services to which value is attributed I agree that there is no easy way of delineating the quantum of value attributed to one feature as opposed to another and that, in a broad sense, brand value might reflect and encapsulate to some degree elements of the other features treated by the CAT as having relevant value for customers. But, given the way in which the CAT approached the analysis, I do not accept it fell into an error of double counting. An important focus of analysis in the Judgment was to identify whether there was evidence that customers valued reliability and trustworthiness, characteristics which do afford some sort of a handle on brand value which might be discrete from certain Gives. The CAT’s final conclusion, cast in highly general and qualified terms, does not falsely represent that brand has some utterly unique identifiable value which can be delineated from other valued features of the SFV service. The conclusion is broad brush and, in view of the CAT’s detailed analysis of the evidence, seems a fair one. Brand value was simply one factor going into the scales alongside the Gives which, without conducting an evaluation of relative weight, the CAT held, collectively, bore a reasonable relationship to value.

I conclude that the CR’s criticisms are not borne out by a due reading of the Judgment but, in any event are, at base, challenges to the CAT’s fact finding over which the Court has no jurisdiction.

Finally, it is said that the CAT erred in holding that it could not award compound interest. Given that the application for permission has been refused the question of compound interest is academic and it is inappropriate to consider it.

For the reasons set out above I would refuse the application for permission to appeal.