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On December 1, 2016, Ofcom announced the start of its Narrowband Market Review (NMR) 2017, which covers the following wholesale markets for fixed voice services in the UK: wholesale call termination, wholesale call origination, wholesale fixed analog exchange lines, and wholesale ISDN30 and ISDN2 lines. The consultation on the proposed markets, market power determinations, and remedies will end on February 28, 2017, with a final conclusion expected in September 2017. Where Ofcom finds that competition is ineffective, any regulation it proposes will apply from October 1, 2017 until September 30, 2020. In particular, Ofcom has focused on updating charge controls.

Ofcom proposes to revise charge controls in its narrowband market review

While most households and businesses in the UK continue to have fixed phone lines, the importance and volume of fixed voice calls has been declining considerably in recent years because fixed voice calls face competition from mobile communication and voice services provided by over-the-top providers (OTTs). With this increased competition, it is likely that traditional voice telephony will be completely replaced by IP voice services in the long term. Therefore, wholesale regulation of traditional fixed voice services could eventually be no longer appropriate and may be entirely removed by regulators in the future.

Although Ofcom's current consultation indicates that such extensive deregulation would be premature in the UK at this stage, the regulator does see that there are opportunities to significantly reduce the amount of regulation on the narrowband markets. Ofcom has continued to designate BT as having significant market power (SMP) across all markets in the UK excluding Hull, while Kcom continues to be designated as the SMP operator in Hull, making both Kcom and BT subject to obligations under the proposal.

In the wholesale fixed telephone lines and call origination markets, both BT and Kcom will be subject to a fair and reasonable charging obligation, rather than the current cost-based charge control. Due to the increased competition offered by mobile services, the "no undue discrimination" obligation on BT and Kcom will also be removed. These changes mean that BT and Kcom can respond better to competition and be more flexible in their pricing. However, the quality of service (QoS) remedies for wholesale line rental will be retained, including QoS standards and key performance indicators. It is worth noting that, since 2014, the market for wholesale call origination is no longer part of the EC's Recommendation on Relevant Markets. However, despite Ofcom making some alterations to the obligations imposed on this market, the regulator has not chosen to completely deregulate the market at this stage, which is likely to attract some criticism from the European Commission (EC).

For ISDN lines, which deliver digital telephone services to businesses, Ofcom is proposing to restrict the regulation faced by BT and Kcom to existing ISDN lines and deregulate the provision and rental of new lines after a transitional period of 12 months. However, the charge control on wholesale ISDN30 and ISDN2 based on current charges will be retained. For wholesale call termination, Ofcom proposes, for the first time, to apply a long-run incremental cost (LRIC) charge control on fixed termination rates to all 315 telecoms providers that have SMP and not just on BT. This charge control would also be simplified to a single flat cap of £0.00024 per minute in 2017/18 and reduced by a further £0.00002 per minute for each subsequent year up to 2020. Until the review is concluded in September 2017, BT has introduced a voluntary pricing commitment of CPI-CPI for the period after the current charge controls expire.

Although Ofcom has suggested reductions in regulation across many markets, one area that continues to cause concern is retail fixed voice-only services. In the UK, retail line rental prices have seen significant price hikes (up to 41% since 2010), despite wholesale line rental prices falling. This tends to have the greatest impact on fixed voice-only service customers because bundled customers are protected by legislation that prevents broadband providers from advertising broadband and line rental prices separately. This increase in price transparency discourages service providers from increasing line rental charges for bundled products but unfortunately does not protect the fixed voice-only customers, which represent 10% of residential landline consumers. Ofcom has decided to conduct a separate review of retail fixed voice-only services in 2017 to establish whether measures to encourage competition are needed to protect this group of customers. If Ofcom concludes that the market requires regulating, it would be at odds with many other EU member states, which have been working toward deregulating the retail markets ever since the EC removed them from its recommendation.


Further reading

UK (Country Regulation Overview),TE0007-000949 (October 2015)


Sarah McBride, Analyst, Regulation

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