Issued: 23 March 2011
BT considers that Ofcom’s Option 1, cost recovery on a Fully Allocated Cost basis, aligns most closely with Ofcom’s cost recovery principles and is superior to, and a more proportionate response than, the proposed Long Run Incremental Costs (LRIC) approach (Option 4). It is also consistent with the Competition Commission’s direction.
If, however, a bottom up model is to be used (and Ofcom acknowledges that the total amount of cost to be recovered remains unchanged under any of the options), then BT urges Ofcom to make some adjustments to it. For example, bottom up models are incremental in nature so should not additionally have LRIC ratios applied as this will bias costs downwards. BT has found examples of costs being omitted and the wrong prices being used.
Once the corrections BT has identified have been made, Ofcom’s bottom-up model gives an overall annual cost estimate for Points of Handover similar to the adjusted models BT has provided to Ofcom for calculating POH costs.
BT urges Ofcom not to asymmetrically implement price reductions immediately on publication of the Statement and to phase in price increases. There’s no evidence that PPC operators who consume a mix of different types of POH will be worse off overall from the proposed price changes.
BT agrees with Ofcom’s proposal for the notification periods to be waived for Type I and II POH. Yet Ofcom should additionally waive the 90 day notification period and RPI-0% sub caps for the Traditional Interface (TI) basket to avoid a shortfall in common cost recovery.
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