BT and TalkTalk today lost their appeal against the Digital Economy Act, apart from one small concession (NB much of the media coverage incorrectly reported the costs element). The judgement has been greeted by the usual cheer-leading from the rights-holders. But what might it really mean for the two telecoms providers?

BT and TalkTalk filed for a judicial review of the Digital Economy Act in 2010. When the ruling rejected their case last year, they took it to appeal.  The appeal  was heard  in January, and the ruling handed down today is the appeal court judgement.

The appeal court  judges rejected the arguments  made by BT and TalkTalk to overturn the original judgement. However,  they  did accept the ISPs’ case on one small matter concerning costs. It agreed that the ISPs should not have to contribute to the case fees for subscriber appeals, as this would be unlawful under the Authorisation directive.

 Or put the other way, case fees would be ‘administrative charges’ within the context of the Authorisation directive, and therefore unlawful.

 Iptegrity readers should note that  much of media coverage is incorrect regarding the costs. It seems that most of journalists tamely cut and pasted from a Press Association report which got it wrong.

 The media coverage is full  of rights-holder cheering. But very little thought given to the business impact of this judgement on the telecoms industry.

 Both BT and TalkTalk will have business reasons why they are pursuing this case. There is one reason that is clear from their arguments, that is the unlevelling of the competitive playing field and the potential for market distortion.  The DE Act potentially gives a significant business advantage  to mobile ISPs, who will not have to stump up for the costs of supporting the DE Act, and who will not face the liabilities.  At the same time, they have implemented a form of content filtering  which is likely to appeal to the rights-holders: How Vodafone censors your Internet

 In addition, it may mean that  the  big ISPs  will see a customer drain in favour of smaller ones, who for the moment are not caught within the remit of the DE Act. BT and TalkTalk are more likely to suffer from this than their competitors Sky and Virgin, who have gained a high market share in broadband by  tying  in  the service with  television  programming.

Sky is part of the Murdoch empire, and  this must raise competitive and ownership  issues which simply have not been addressed at all  - and would have been outside the scope of the review as it stood, but nevertheless should be addressed by government.

BT is also being asked to fund a major investment in fibre infrastructure to support broadband services for the long term.  The Digital Economy Act  represents a threat to its business plan for this investment. 

Sky and Virgin do not have the same legal obligations as BT. They can cherry-pick where they install fibre infrastructure, and they are likely to only do so where there is a high demand, easy to get to, and in areas of high net worth people. BT, on the other hand,  has a universal service obligation and must install everywhere, irrespective of usage, geography, or  the incomes of the residents.

 BT is likely to have specific concerns about wifi as it is trying to build its own wifi service based on customer home hubs. The DE Act is a threat to its business plan for this service.

Moverover, it is my understanding that the wifi implications, and potential liability for public  wifi providers, have not been properly addressed in the draft Ofcom code.

 This was of course a judgement handed down by the independent judiciary. However, BT and TalkTalk’s opponent was the government.

  A government which expects a major economic contribution from BT should perhaps consider whether kicking it in the teeth is an appropriate reaction.  Especially when it is, in parallel, preserving a regulatory regime designed in a different, uncompetitive, era. Unless, of course,  it really wants to turn BT into an experiment in broadband taxidermy.

You may re-publish my article under a Creative Commons licence, but you should cite my name and provide a link back to iptegrity.com. Media and Academics – please cite as Monica Horten,  DE Act appeal ruling: is BT stuffed? www.iptegrity.com 7 March   2012 . Commercial users - please contact me.

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