The first substantive judgment under the UK’s collective action regime was handed down in December 2024, in the case of Justin Le Patourel v BT Group PLC. Acting on behalf of 2.3m BT customers, Mr Le Patourel (the CR) claimed up to £1.3bn in damages for an allegedly abusive overcharge in respect of standalone fixed voice services. 

Le Patourel  is the latest in a line of Competition Appeal Tribunal (Tribunal) judgments addressing unfair pricing under UK competition law. Until now, those judgments have largely concerned appeals against CMA infringement decisions (e.g. Liothyronine, Hydrocortisone and Phenytoin). But standalone claims like Le Patourel are arguably more informative, as they force the Tribunal to address the contested issues head-on, rather than defer to the CMA’s “margin of appreciation”. This latest judgment could therefore prove instructive in predicting how the Tribunal will approach the wave of unfair pricing claims recently commenced under the UK’s collective action regime.

In our previous article, we outlined the essential elements of the claim and the reasons for its dismissal. Here, we take a closer look at the Tribunal’s reasoning, particularly on the critical question of when an excessive price can be deemed “unfair” – and therefore abusive.

Market definition and dominance

The case concerned the standalone supply of landline telephone services to residential addresses, known as Standalone Fixed Voice Services (SFV Services). None of the customers within the class took a “bundle” (i.e. a package of telephone and broadband services under one contract) from BT. 

In assessing market definition, the Tribunal spent some time considering the competitive interaction between SFV Services and bundles, including whether bundles acted as a constraint on the pricing of SFV Services. Ultimately, the Tribunal found that, even though there was some competitive interaction between these products, it was not sufficient to depart from the starting point of SFV Services forming a separate market. Whilst the Tribunal observed that SFV customers had, over the claim period, steadily switched away from SFV Services to bundles, this was part of “secular trend” of broadband uptake increasing, rather than evidence of SFV customers viewing bundles as substitutes. The Tribunal was also wary of enlarging the market through the application of the so-called SSNIP test, given the risk of false positives in excessive pricing cases, where the dominant firm may already be charging the most the market can bear. 

As for dominance, the Tribunal found that BT’s share of the SFV Services market – which varied between 54% and 98% depending on the approach adopted and the time periods in question – was sufficiently high to give rise to a presumption of dominance. The Tribunal also found that BT’s competitors faced barriers to expansion, because of the perceived difficulty of enticing customers away from BT in a declining market. Consequently, the Tribunal concluded that BT was dominant.

Abuse – unfair pricing

The overall test for unfair pricing, as set out in the seminal EU case of United Brands, is whether the price charged “has no reasonable relation to the economic value of the product supplied”. Different methods can be used to assess this, but the typical approach is to apply the two-limb cumulative test of: (i) excessiveness; and (ii) unfairness.

Limb 1: excessiveness

The typical approach to assessing whether a price is “excessive” is to compare it to a competitive benchmark based on the cost of supplying the relevant product plus a “reasonable rate of return”. If the difference between the two (or the “excess”) is “significant and persistent”, then the price is excessive. 

What sounds like a simple test in fact presents several layers of complexity, and in many unfair pricing cases a considerable amount of time must be spent on evaluation of economic models which analyse the relevant costs incurred and seek to identify the reasonable rate of return. 

Le Patourel was no different in this regard. To illustrate the impact such economic models can have, according to the CR’s expert, BT’s standard SFV line rental exceeded the competitive benchmark by 60-74% across the claim period, whereas BT’s expert concluded that its average revenue per user was less than the benchmark in every relevant year.

BT’s costs in relation to SFV Services

A significant proportion of the Tribunal’s 300-page judgment was spent analysing the parties’ experts’ calculations of the costs incurred by BT in relation to the provision of SFV Services. The complexity of this exercise arose from the fact that, like many businesses, BT is an integrated one, and businesses often do not expressly allocate all their costs (including common costs) to specific products as a matter of course. 

The CR’s expert relied on figures produced by BT for a 2009 regulatory report – uprated for inflation so as to correspond to the claim period – arriving at a total of £34.80 in indirect costs per SFV customer on an annual basis. On the other hand, BT’s expert conducted a fresh analysis, arriving at an indirect cost figure of £113.51 per customer. This relied in part on the expert’s own estimates of the likelihood of the various components of BT's Consumer division's common costs being attributable to SFV Services, and the Tribunal criticised BT for not submitting factual evidence on this point. 

Ultimately, however, the Tribunal did not reject either expert’s methodology outright, but decided to carry out its own cost calculations, based on a combination of the two approaches. 

Determining the “reasonable rate of return” 

To determine the reasonable rate of return, the Tribunal sought to identify the “minimum sustainable margin” that would justify continued support from investors in providing SFV Services. This is a relatively novel approach – one that is not reflected in the established unfair pricing jurisprudence, including the Court of Appeal’s judgment in Phenytoin. Approaches adopted in other cases include calculations of the returns associated with: (i) other products sold by the dominant firm; and/or (ii) similar products supplied by other firms. The only other instance of the “minimum sustainable margin” being applied was the Tribunal’s judgment in the remitted Phenytoin appeal, which was handed down in November 2024.

For their part, the parties put forward the following evidence.

The CR’s expert submitted that that 8.9% represented a reasonable rate of return (with 10% the maximum reasonable margin), based on BT’s reported margins for residential fixed voice services in 2006 – the final year in which prices of those services were regulated by Ofcom. The CR’s expert also referred to a 2017 Ofcom report addressing BT’s margins, which stated that “a ROS of no more than 10% is consistent with a cost-based estimate of profitability for a provider of retail voice services” and performed a number of “comparator” cross-checks looking at other telecoms providers’ margins, which produced a range of figures between 2% and 16.9%. 

BT’s expert proposed a reasonable rate of return of 25%. This too was based on comparator companies, including other telecoms operators and companies with similar financial metrics to BT (regardless of the nature of the products). BT’s expert took the 90^th percentile of the range of the various margins included in those clusters, considering that it would be wrong to take the average, as this would imply that at least half of the firms were earning excessive returns. In the alternative, they submitted a 20% reasonable rate of return would be appropriate, representing the margin at the 75^th/ 80^th percentile. 

The Tribunal accepted that the material before it on the relevant competitive benchmark did not lead to a single clear answer, but – having regard to all of the evidence – adopted a reasonable profit margin of 13.5%. This was close to the median figure of 14% of the comparator margins submitted by BT’s expert, and higher than the 8.9% figure proposed by the CR’s expert. 

Separately, BT’s expert argued that it should be permitted a higher level of profitability than that resulting from a cost-plus calculation for BT, to reflect that in a “workably competitive” market there will be a range of cost levels among rival firms. The Tribunal rejected this argument, confirming that arguments of this kind were relevant to Limb 2 instead.

How far above the relevant competitive benchmark does the price need to be for there to be a “significant” excess?

For Limb 1 to be satisfied, the prices charged not only have to be above the relevant competitive benchmark, such that there are excesses, but the excesses must be “significant and persistent”. 

In Le Patourel, the Tribunal ruled that any excesses would have been significant if they were “20% or more above the competitive benchmark”. This is consistent with previous case law, including the European Commission’s settlement decision in Aspen, in which the EC accepted prices that were above Cost-Plus by “10-20%”. After applying its assumptions as to the cost of the SFV Services and the above reasonable profit margin, the Tribunal found BT’s prices to be above this level throughout the claim period (the excess profit ranging from 25% to 49.9%, as a percentage of the competitive benchmark), such that the excessiveness limb was satisfied. 

Limb 2: Unfairness

For a finding of unfair pricing to be reached, it is not sufficient for a price to be excessive – it must also be unfair. The unfairness limb has two alternatives: a price can either be unfair “in and of itself”, or unfair by reference to “competing products”. The purpose of this exercise is, ultimately, to assess whether the price charged bears any reasonable relation to the economic value of the product. 

Unfairness “in and of itself”

This is a particularly nebulous concept, in respect of which decision-makers have relied on a multitude of indicators, including changes of prices over time and the alleged vulnerability / special status of the purchasers. 

In the recent decisions in Hydrocortisone and Phenytoin, the Tribunal proposed an analytical framework according to which the excess profit should be assigned to one of three “cases”, depending on whether it stems from: (i) greater cost-efficiency; (ii) the provision of “distinctive value” to consumers; or (iii) other factors. In Le Patourel, the Tribunal did not expressly follow this framework, but the question of “distinctive value” played a significant role, as detailed below.

For his part, amongst other things the CR sought to rely on internal documents suggesting that BT recognised it had real market power and had sought to extract what revenues it could from sticky customers in a declining market, with a view to funding investments in other parts of its BT Consumer business (particularly BT Sport). This was generally achieved through annual £1 increases in monthly line rental. The CR also argued that BT had reaped trading benefits which it could not have obtained in conditions of “workable” (or “normal and sufficiently effective”) competition. According to the CR, in such conditions, the price for SFV services would be driven down to “cost-plus” levels (i.e. with no “economic profit”, once BT’s cost of capital was accounted for) unless there was some unique feature distinguishing BT’s product from the rest of the market (which the CR denied there was).

Ultimately, however, the Tribunal found that the prices charged by BT did bear a reasonable relation to the economic value of SFV Services, such that they were not unfair. The following key factors fed into the Tribunal’s analysis in this regard: (i) the extent of the excess found at Limb 1 (which was less than claimed by the CR); (ii) customers’ ability to switch to other suppliers/products, and evidence of such switching having occurred (or not); (iii) aspects of BT’s service that amounted to “distinctive value” (including on-shore call centres and its “Call Protect” feature); and (iv) BT’s brand value, as derived from customer surveys.

The Tribunal concluded that there was sufficient evidence that, for at least a substantial number of those who remained BT SFV customers, their decision not to switch implied that they attached a degree of positive value to BT’s product and brand. And the other factors pointed to by the CR – such as the alleged exploitation of price-insensitive customers, and the suggestion that revenue from price rises was used to fund investments for non-SFV Services – did not materially support the allegation of overall unfairness. 

The Tribunal also disagreed with the CR’s arguments on workable competition, holding that a cost-plus pricing level was unrealistic, and that dispersion in both prices and cost efficiencies in workably competitive markets meant that some suppliers could earn profits significantly in excess of others without engaging in unfair pricing.

Unfairness by comparison

On this question, the Tribunal reviewed a number of comparators – including line rental charges for BT’s competitors, and pricing commitments that BT offered to Ofcom to resolve concerns about its SFV pricing – and concluded that none of them suggested BT’s pricing was unfair. The fact that a comparable product was cheaper was not, in itself, sufficient to show that BT’s SFV price was abusive. 

Conclusion

Limb 2 not having been satisfied, the Tribunal dismissed the CR’s claim.

Other matters

Despite the Tribunal’s decision to dismiss the claim, it briefly provided its views on a number of other matters, which could prove instructive for other claims going forward.

Pass-on

BT argued that business customers that purchased SFV Services would have passed on any overcharge. However, the Tribunal agreed with the CR’s expert that there was no real likelihood of any pass-on. This was due to several factors, including the fact that class members were unaware of the overcharge at the time and there was no evidence of any direct relationship between SFV Services and the products/services whose prices would have been impacted by pass-on. 

This illustrates the difficulty defendants face in proving pass-on in collective proceedings, in circumstances where class members do not provide individual disclosure of the kind typically used to evidence pass-on in other types of competition damages actions.

Interest

The CR submitted that, had the class members not been overcharged, they would have had more money in their pocket, which they would either have saved or spent. In relation to the money class members would have spent, to avoid under-compensation the CR put forward the novel argument that the relevant portion of damages be uprated by the rate of inflation over the relevant period. This is on the basis that it would now cost significantly more for class members to purchase the goods or services they would otherwise have purchased in the claim period. The Tribunal, for its part, dismissed this argument, finding no legal basis for it.

The CR also claimed for compound interest. The Tribunal initially seemed willing to entertain the possibility of awarding it, commenting that to restrict the award of compound interest would not reflect the prominence of compound interest in the real world. Ultimately, however, the Tribunal concluded the CR had not adduced evidence conforming to the strict requirements set out in the leading case of Sempra Metals. As the class members in opt-out claims do not typically give individual disclosure, it will often be difficult for class representatives to obtain the type of evidence from the class that Sempra Metals requires, such that we can expect other such claims to encounter similar issues in the future.

Conclusion

The judgment in Le Patourel demonstrates the complexities inherent in unfair pricing claims. Despite the failure of the claim, the Tribunal's approach here is likely to influence future cases, with valuable guidance provided on key questions such as apportionment of costs, reasonable rate of return and economic value, as well as the broader issues of pass-on and interest.

It has since been reported that the CR is seeking permission to appeal the Tribunal’s decision, including on the grounds that the Tribunal erred in its approach to assessing BT’s economic evidence on the attribution of costs and the economic value of BT’s services. Should such permission be granted, a Court of Appeal decision would no doubt prove highly influential in the future development of this increasingly active area of UK competition law.