Lyris 410 Corded Telephone

Unpacking your phone

In the box you will find: Base Unit Handset Coiled Handset cord Telephone line cord for Base unit User manual Keep the packing materials in a safe place in case you later need to transport the unit Keep your sales (till) receipt, which is your guarantee.
Installing (or Replacing) the Battery
IMPORTANT - Before removing the battery compartment cover,always make sure the base unit is disconnected from the telephone line. Install 2 pcs of Alkaline AAA batteries into the battery compartment and place back the cover before use. Note: 1) Please do NOT use Rechargeable batteries in this phone. 2) ,-8806: 24.39/0/ 3 )The battery life is typically about 6 months, depending on usage. ?GDL QGD A@QQDOT HP JMS< will show up of the CHPNJ@T PBODDL= >E TMR CM LMQ ODNJ@BD QGD A@QQDOHDP< QGDT SHJJ ADBMKD QMQ@JJT CHPBG@OFDC @LC TMRO CHPNJ@T PBODDL SHJJ LMQ SMOI= and you may lose all the telephone memories and settings.
3. Desk/Wall mount installation

Desk Mount

To place the Lyris 410 on a desk, connect the stand to the bottom of the phone in the slots near the rear of the base as shown below.

4. Setting up your phone

Press the SET/STO button to enter the menu and then use UP or DOWN buttons to cycle through the following options: SET 1 DATE SET 2 LCD SET 3 FLASH

1. 2. 3. 4.

LCD Screen Ringer light indication M1,M2,M3 Memory buttons Scroll Up & Down buttons
5. Delete button 6. Set/Store button 7. Memory button 8. LNR(Last Number Redial) button 9. Speakerphone button 10. Mute button 11.R(Recall) button 12.Pause button
Note: The system will time out if you leave more than 8 seconds between key presses.
BE CAREFUL to check that there are no electrical wires hidden in the wall. Fix two screws (supplied with the unit) at the marked locations, leaving approximately 7mm between the wall and the the screw head. Hang the cradle unit on the screws using the wall mount slots. You may need to remove the telephone from the wall and tighten the screws so that the cradle is securely fixed and does not wobble. Place the Handset on the cradle with the parking hook on the cradle arranged to fit in the parking recess under the earpiece on the Handset.

Set Time/Date

Insert the rigid clips of the stand into the slots on the bottom of the phone (near the rear of the base). Press down firmly until the flexible clips clicks into place. To remove the stand, (1) pinch the flexible clips, ( 2) pull back the stand, and then (3) slide up and forward (3) as shown below.
You will need to set the correct time and date so they can be displayed correctly on the display. If you subscribe to a Caller Display service, the time and date will be set automatically on receipt of your first incoming call. In standby mode, press SET/STO button. The display shows ' SET 1 DATE '.
Press SET/STO button to confirm. The 'year' icon will be blinking. Press UP or DOWN button to set the year.
Press SET/STO button to confirm. The 'month' icon will be blinking. Press UP or DOWN button to set the month. Press SET/STO button to confirm. The 'date' icon will be blinking. Press UP or DOWN button to set the date. Press SET/STO button to confirm. The 'hour' icon will be blinking.
Important note---back up batteries
The Lyris 410 requires 2 x 1.5V AAA size Alkaline batteries installed into the battery compartment before use. Warning: The caller display will not work without batteries installed.

2. Installation

1. Locating the Base unit The Base unit should be placed on a level surface, in a position where: the telephone line cable will reach your telephone line socket or extension socket. it is not close to a sink, bath or shower, or anywhere else where it might get wet. it is not close to other electrical equipment - fridges, washing machines, microwave ovens, TVs, fluorescent lights, etc.

Wall Mount

To place the Lyris 410 on a wall, connect the stand to the bottom of the phone in the slots near the front of the base cover as shown below.
Press UP or DOWN button to set the hour.
Press SET/STO button to confirm. The 'minute' icon will be blinking.
Press UP or DOWN button to set the minute.
Press SET/STO button to confirm the setting. The display shows ' SET 2 LCD ' , you can continue with programming, or press DELETE button to return to standby mode.
2. Plug the coiled handset cord into the Handset. Plug the other end into the jack on the left side of the Base unit. 3. Place the Handset in the Base unit.
Always use the telephone line cord supplied with your Lyris 410 phone. Other telephone line cords may not work.
Make sure the plugs click into place.
Desk/Wall mounting continue.
Insert the rigid clips of the stand into the slots on the bottom of the phone ( near the front of the base). Press down firmly until the flexible clips clicks into place. To remove the stand, (1) pinch the flexible clips, (2) pull back the stand, and then (3) slide up and forward as shown below.

Set LCD Contrast

In standby mode, press SET/STO button. The display shows ' SET 1 DATE '. Press UP or DOWN button until the display shows 'SET 2 LCD'. Press SET/STO to confirm.
Press UP or DOWN button to select your comfortable display viewing level (1~8). The default setting is 3. Press SET/STO button to confirm the setting. The display shows ' SET 2 LCD ' , you can continue with programming, or press DELETE button to return to standby mode.
4. Plug the telephone line cord free end into a modular wall jack. Press the cable into the groove so that the Base unit stands level. 5. Lift the Handset and check for Dial tone in the earpiece.

and 08453459677

0818762092

to Modular Wall jack

inatoneonline.com/
Mark two points on the wall that are 92 mm apart to lay the fixing centers as shown below.

Set Flash Time

This telephone gives you the possibility to use the special services services of your network provider. When pressing the RECALL button, the phone generates a line interruption and the length depends on your Flash Time setting. In standby mode, press SET/STO button. The display shows ' SET 1 DATE '. Press UP or DOWN button until the display shows 'SET 3 FLASH'. Press SET/STO to confirm. Press UP or DOWN button to select 100 (default),300, 600, or 1000. Press SET/STO button to confirm the setting. The display shows ' SET 1 DATE ' , you can continue with programming, or press DELETE button to return to standby mode.

Lift the Handset, listen for a dial tone. The display shows ' 00-00 '. Dial the telephone number you wish to call. The display shows the number as you dial(maximum of 14 digits will be shown). To end the call, return the Handset to the Base unit. When the phone rings; Lift the handset or press the SPEAKERPHONE button on the Base unit. The Call timer starts about 7 seconds after going on line.

Dial out Stored number

Storing a Number in (0-9) two-touch memories
Lift up Handset or press the SPEAKERPHONE button, press M1,M2,M3 buttons. The number dials automatically.
In standby mode, Key in the telephone number you wish to stored. Up to a maximum 16 digits. Press SET/STO button.
Press the (0-9) button to store the number in the selected memories.
After the Guarantee has expired If the unit is no longer under Guarantee, first follow steps 1 and 2 as for repair under Guarantee. Then 3. Call our Service Department on 9677 and ask for a quotation of the repair charge and details of where to send your Lyris 410 for repair. 4. Make sure you include with your Lyris 410: your name and address. a cheque or postal order for the value of the repair charge. 5. Return your Lyris 410 to the address given by the Service Department.

8. Technical details

Standard Lyris 410 Telephone Temperature range Operating 0 C to 40 C Storage -20 C to 60 C PBX compatibility Timed break recall: 98 ms. Pause length: 3.6 seconds. Signalling type: DTMF (dual-tone multifrequency) also called tone dialing. Network connection This equipment is intended to be used in the UK only. Operation on other countries PSTN termination points cannot be guaranteed.

BINATONE TELECOM PLC

1 Apsley Way London NW2 7HF,United Kingdom. Tel: +44(0) 2700 Fax: +44(0) 8877 e-mail: binatoneuk@binatonetelecom.co.uk ________________________________________

5. Telephone Operations

Making a call
Dial out Stored number (0-9) two-touch memories

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6. Caller Display Operation
VERY IMPORTANT: To use Caller Display you must first subscribe to your network provider's Caller Diaply service. If you subscribe to a Caller Display service, you can see the phone number of the person calling you before you answer. The caller display information includes: The date and time of the call The caller's number LCD Screen will display Condition of Incoming Caller Information REP It is a duplicate one NEW It is a new one It has exceeded the range of the service UNAVAILABLE WITHHELD It is a secret one ERROR It may not be nicety for the reason of outside There is a voice information in your mailbox (This function is available only when you have applied for this service from your telecommunication network)
Caller Display list Lyris 410 dynamically stores up to 30 groups (12digits)incoming information. If a call is received when the Call list is full, then the new entry will replace the oldest one.

To answer a call

To adjust the speakerphone volume
During a call; Adjust the volume of the speakerphone to your comfortable volume level using the SPEAKERPHONE volume switch located at the right side of the Base unit.

To end a call

Replace the Handset on the Base unit cradle or press the SPEAKERPHONE button on the Base unit. The SPEAKERPHONE light indicator will turn OFF.
During a phone conversation through the Handset, press the SPEAKERPHONE button to speak hands-free. The Speakerphone light will turn on, but conbrtdsyion remains through the Handset until the Handset is speakerphone replaced on the Base unit cradle. while in speakerphone mode, lift the Handset to enable a private conversation. Lift the Handset or press the SPEAKERPHONE button on the Base unit. Press LNR button. The phone automatically dials the last number you called (maximum of 32 digits). During a call press MUTE button. When the mouthpiece is muted, the person at the other end of the call cannot hear you but you can hear his side. To get back to the call, press MUTE button again to release.

To switch between the Handset and the Speakerphone
EC Declaration of Conformity We the manufacturer / Importer : Binatone Telecom Plc 1 Apsley Way London NW2 7HF, United Kingdom. Declare under our sole responsibility that the following product Type of equipment: Corded phone Model Name: Lyris 410 Country of Origin: China Brand: Binatone complies with the essential protection requirements of R&TTE Directive 1999/5/EC on the approximation of the laws of the Council Directive 2004/108/EC on the approximation of the laws of the Member States relating to electromagnetic compatibility (EMC) and the European Community Directive 2006/95/EC relating to Electrical Safety. Assessment of compliance of the product with the requirements relating to the essential requirements according to Article 3 R&TTE was based on Annex III of the Directive 1999/5/EC and the following standard: Waste electrical products must not be EMC: EN 55022:2006 disposed of with household waste.

EN 55024:1998+A1+A2

Electrical Safety: EN 60950-1:2006 The product is labelled with the European Approval Marking CE as show. Any Unauthorized modification of the product voids this Declaration. Manufacturer / Importer (signature of authorized person)
This equipment should be taken to your local recycling centre for safe treatment.

Last Number Redial

Mute Function
Viewing the 1 Caller Display list

To return a call

Inserting a Pause in the dialing sequence 1

Use on PBX

Storing a Number in M1,M2,M3 memories
For some switchboard system, an access number must be dialed (usually an 8 or 9) to get another dial tone and an outside line. Pressing PAUSE button immediately after the access number, a pause of about 3.6 seconds will be entered, and the desired number can be dialed immediately. Press PAUSE button to insert a pause when dialing or storing Long Distance Access Codes.
If you are using your Lyris 410 phone on a PBX, and the PBX user guide tells you to press RECALL; Press R (RECALL) button on your Lyris 410 phone.
In standby mode, press UP or DOWN Dutton. The display shows the most recent record. If there are no Caller Display records, the display will show ' 00 CALL' Press UP or DOWN again to scroll to the next Caller Display record. When the Caller Display record is displayed. Press LNR button. Lift the handset or press the SPEAKERPHONE button on the Base unit. The phone automatically dials out the displayed record.

When the Caller Display record is displayed. Press DELETE button will delete the Caller Display record. The display shows the next Caller Display record. Press and hold DELETE button 3 seconds, all the Caller Display records will be deleted. The display automatically return to standby mode.
London, Signature: Place & Date: 8th Mar, 2009
Connection and conditions for use
To delete Caller Display record
You can connect your Lyris 410 phone to a direct exchange line (DEL) - a line connected to a local exchange, with its own phone number; to an extension socket connected to a DEL; or to an extension on an approved compatible PBX. Do not connect the Lyris 410 phone as an extension to a pay phone. The ringer equivalence numbers (RENs) of all instruments (phones, fax machines, etc.) connected to an exchange line must not add up to more than 4 - otherwise, one or more of them may not ring and/or answer calls correctly. The Lyris 410 phone has a REN of 1, and most other telephones have a REN of 1 unless marked otherwise.

7. Guarantee and service

The Binatone Lyris 410 is guaranteed for 12 months from the date of purchase shown on your sales receipt. The Guarantee does not cover damage by misuse or negligence, or by excessive voltages - for example, faults on the telephone line, or lightning. This does not affect your statutory rights. Please keep your sales (till) receipt - this is your guarantee. You should also keep the original packaging material. In the unlikely event that you need to return your Lyris 410 to our Repair Centre while it is under guarantee, there will be a 5 handling charge. While the unit is under Guarantee 1. Disconnect the Base unit from the telephone line and the mains electricity supply. 2. Pack up all parts of your Lyris 410, using the original packaging. Remember to include the mains adapter 3. Return the unit to the shop where you bought it, making sure you take your sales receipt.
Contents of this User Guide
1. Where to find it If you need help 2. Installation The Binatone Help Line is 3. Wall mount installation available from 9.00 am to 4. Setting up your phone 5.00 pm, Monday to Friday, on 5. Telephone operation 6. Caller display operation 9677 7. Guarantee and service Calls are charged at Local Call 8. Technical details rate. Pressing buttons on your phone When the instructions in this user guide tell you simply to press a button, this means that you should press the button briefly, then release it. When the instructions tell you to press and hold a button, this means you should keep the button pressed until the display changes and/or you hear a tone.

UK BTP Ver 2.0 May 2009

Press M1.M2 and M3 button to stored.

While it is the case that BTs share of the DECT market is lower than for the overall consumer phone market, Ofcom does not consider this would alter its dominance finding. 54 Complainants letter to Ofcom of 29 March 2005
Differences in consumer tastes have lead to differences in phone design and features such that a phone developed for the marketplace in Germany may not necessarily appeal in the UK.55
Ofcoms analysis 138. To determine whether the market is limited to the UK or whether it may be larger (e.g. including the rest of Europe or a world-wide market) it is relevant to test whether retailers would consider purchasing phones from wholesalers abroad or direct from the manufacturers in response to a 10% rise in UK fixed line wholesale consumer telephones prices. Ofcom also considered supply-side opportunities for wholesalers overseas to supply phones to the UK market. 139. However, all phones currently supplied in the UK are manufactured overseas, predominantly in the Asia-Pacific region, to the technical specifications required by UK customers. Whilst it would be possible for manufacturers in any country worldwide to supply the UK market, they would need to manufacture the phone to the technical specifications and to the consumer preferences required in the UK. 140. There is some evidence to suggest that there are some upfront costs in producing a version of a DECT phone suitable for the UK market, compared to the rest of Europe. In particular, Ofcom has spoken to one supplier who has indicated that slightly different phone standards apply between the UK and some countries in the rest of Europe, such that some phones may not be fully compatible with the UK fixed-line network.56 However, the costs to a manufacturer to configure a phone for the UK market are small. 141. The basic telephone marketed in Europe (including the UK) appears the same irrespective of destination market. Packaging, instructions power and telephone cable are, however, country specific. One supplier claims set-up cost arising from these set up costs should not exceed 2 per unit. 142. Another estimate suggests the cost of adaptations to the plug to be around $0.50 per unit.57 Another supplier estimated EUR0.15 for adapting the power supply and EUR0.15 for adapting the plug.58. One supplier argues that only the cost of changes to the plug/adapter would be material costs of switching production to the UK market.59 143. This suggests that the substituting production from phones intended for the Continental European market to UK compatible phones may not be costly. This could suggest that a 10% SSNIP increase in the price of UK compatible phones could reasonably be expected to result in a shift in production to UK compatible phones, such that the price increase in producing UK compatible phones is not profitable. This would then suggest a chain in the supply side substitution between production of UK compatible phones with production of Continental European compatible phones.

Timing differences 172. The retail GfK data reports "sales out" at the retail point of sale on the date the consumer buys the phone. However, the relevant date for the wholesale market is the date the sale of the phone from the supplier to the retailer is invoiced to the retailer (which may be significantly earlier). 173. In a volatile market it is possible that these timing differences could lead to material, but temporary, differences in market shares at the wholesale and retail level. Over time, however, any differences should even out as underlying shifts in market shares at the wholesale level take effect at the retail level. 174. BT, Binatone and Panasonic have indicated that the presence of time lags and warranty returns make reconciliation of the GfK data and in-house data difficult. For instance BT states that: The data BT has provided covers sales to BT's own customers, whereas the GfK data covers sales by those customers to the consumer end user. There can be a time lag of anywhere between 1 and 6 months for products sold in to retailers to be subsequently sold on to consumers. It is impossible for BT to know when a product sold to the retailer has been sold on by that retailer.; and
Data relating to ECD sales provided by BT (email dated 6 October 2005).
Warranty returns are also an issue in reconciling the different sets of data. [ ].75
175. Panasonic has also made a similar observation: "As far as the reliability of the GfK data is concerned, neither volume nor value can be readily reconciled on a monthly basis. In respect of volume, the time between our sales in to retailers and their sales out to end users is variable, dependant both on the retailer concerned and general market conditions.76
176. Finally, Binatone states: Binatones data records sales at a different level of the market to the sales recorded by GfK. Accordingly, any comparison between the data would be of limited value.77
177. Notwithstanding these limitations, Ofcom considers that: Overall, BT and Panasonic consider that the GfK data is reliable and accurate for the purposes of estimating market shares in the retail consumer telephone market, and is therefore a reliable estimate for upstream shares in the derived wholesale market; and the complainants have relied on the use of GfK retail data in support of their allegation of high market shares in the wholesale market, and have identified omitted sales figures that could lead to the GfK data underestimating BTs share of the wholesale market. Ofcom has considered these potential omissions in assessing the market share position as already set out above.

Market share analysis 178. Figure 7 and Figure 8 illustrate suppliers market shares in the fixed line communications equipment market from January 2000 to May 2005.
BTs S26 response to Ofcom 2 September 2005 Panasonics S26 response to Ofcom 26 August 77 Binatone's S26 response Ofcom 5 September 2005.
Figure 7 Market share: All consumer telephones, by volume, 2000-200578

40 percentage (%)

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ALCATEL CABLE&WIRELESS PANASONIC

AUDIOLINE DBTEL PHILIPS

BETACOM GEEMARC SIEMENS
BINATONE MOTOROLA <Others>

BT NTL

BT (incl direct sales) ONETEL

Source: GfK, BT

Figure 8 Market share: All consumer telephones, by value, 2000-200579

50 percentage (%)

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ALCATEL DBTEL PHILIPS

AUDIOLINE GEEMARC SIEMENS
BETACOM MOTOROLA <Others>
BINATONE NTL BT (incl direct sales)

BT ONETEL

CABLE&WIRELESS PANASONIC
For the period June 2005 to November 2005, data on market shares was available for Binatone, BT, Cable and Wireless ntl, Onetel., Panasonic, Philips, and other category only. The other category does not include named suppliers referred to in the legend to the figure. 79 The BT share (including direct sales) is adjusted (between April 2002 and May 2005 to provide an indicative share inclusive of sales through BT direct. Ofcom only has data on volumes sold through BT Direct and has therefore used percentage of volume sales as a proxy for additional revenues earned through BT Direct sales.

261. [

The complainants alleged in the 7 June 2006 letter that Argos intends to withdraw the Southwestern Bell brand. 108 http://secreg.globalsources.com/sreg/SITE/CORDLESSPH/MIRCLPOVERVIEW.jsp?productcode=MI RCLP&dmsource=HP102AHW#tabs 109 Complainants letter to Ofcom on 23 February 2006.

262. [

263. As noted above, there are over 100 cordless phone manufacturers in greater China alone, but BT sources 90% of its DECT phones from two manufacturers. Furthermore, Ofcom notes that it appears that most manufacturers in the Far East operate well under full capacity.110 [ ] 264. Ofcom has approached a number of suppliers, including suppliers that have previously entered the market (and suppliers who do not presently operate in the market, but had considered entering it). Ofcom requested each supplier identify the reasons why they entered (or intended to enter) the market, including whether any barriers to entry, expansion or exit were factors considered in their commercial decision. 265. One such supplier, [supplier], operated only in the UK and supplied phones under its own brand name as well as other brands under licence.111 The supplier considered that it has a well established brand for its own entry-level products, as well as supplying premium branded phones under licence. The supplier suggested that not having a well established or premium brand would make it harder for a potential new entrant to enter the market (unless that entrant could aggressively compete on price). 266. Responding to the first draft decision,112 the complainants argued that Ofcom had relied only on the entry of MagicBox as evidence of entry into the market, and that Onetel and Motorola should not be considered as separate entrants, since MagicBox currently sells these brands under licence. 267. Ofcom accepts that a distinction must be drawn between market entry by an undertaking and new brand entry to the market. It is plainly the case, for example, that certain potential barriers to entry that might stand in the way of an undertaking entering a market in which it had no existing presence might not be relevant to the entry of brands (which could be achieved by licensing the brand to an existing market player, for example). Nevertheless, one of the points which has been strongly and repeatedly made to Ofcom by the complainants is that the strength of BTs brand is itself both a barrier to entry and a significant source of market power. The demonstrated ability of brands which had not hitherto been part of the UK consumer phones wholesale and retail sectors to effect significant entry to that market is therefore far from being irrelevant, in particular where that has been achieved via a wholesale supplier that is itself a new market entrant. 268. Ofcom notes that market share data for licensed brands with MagicBox suggests that new entrants can take market share from BT and that at least in respect of some licensed brands, there has been a degree of market penetration (e.g. Onetel raised its market share from 0% to 4.6% in the DECT product segment between January 2004 and December 2005 see paragraph 197).

Note that East Central Distribution was and Rocom is a business to business distributor who sells both to retail and non-consumer outlets. In the case of East Central Distribution, a significant percentage of these sales actually ended up with a high street retailer, in particular, Homebase. 170 Eg see paragraphs 638 onward
retailers acting as information flows from end consumers, or through the countervailing buyer power of retailers (or both). Constraints originating from either source support a non-dominance finding. 397. In conclusion, based on the evidence set out in paragraphs 353 to 395 it is Ofcom's view that there are constraints on BTs pricing, including the following: buyers are well informed about potential sources of supply and can choose their supplier with ease; indeed, buyers have shown they are willing and able to self supply (e.g. [retailer] with [ ] licence); sellers (including BT) are willing to cede better terms in order to retain the opportunity to sell through any one of the major retailers; there is fierce competition to gain shelf and catalogue space with the major retailer which provides those retailers with additional capacity to pitch the suppliers against each other so as to drive prices down even further or press for better terms; and Ofcom does not consider that the power of BTs brand substantially negates the ability of buyers to exploit the circumstances set out in the previous three bullet points (this issue is discussed further below). 398. However, Ofcom considers that while the constraints on BTs pricing are readily observable, Ofcom does not have sufficient information available to assess whether in fact the constraints on BTs pricing arise from countervailing buyer power or competitive retail sector constraints, or a combination of both.
Conclusion on the existence of demand side constraints 399. Taking into account all the evidence, Ofcom concludes that BT is subject to demand side constraints (in particular from the large multiples, namely, Argos, Dixons, and Comet who together account for over [ ] of all BTs sales of consumer phones) on its prices and terms and is not, therefore, able to price to any significant degree independently of customers, competitors or consumers. Ofcom rejects the complainants claims, made following its previous draft decision, that Ofcom was relying on too few suppliers in coming to that view. On the contrary, Ofcom has expressly not relied solely on the buyer power of Argos, but has carefully considered a wide range of evidence (including BTs internal documentation) before coming to the conclusion that BT is subject to effective demand side competitive constraints. 400. Indeed, as discussed in the section below where Ofcom considers whether BT was following a predatory strategy, the internal documents suggest that BTs overall strategy included a desire to maintain value in the market. However, BT has sometimes found itself having to cut its prices in response to competitive pressures which have been channelled into demands by retailers for BT to cut its wholesale prices and/or offer additional marketing support. BT has therefore been compelled by market conditions to follow the general downward price trend in relation both to analogue and DECT phones from which consumers have been benefiting since 2002. Although Argos is likely to be in the strongest position to demand price cuts, the keenness of competition between retailers is such that any BT-funded promotions that are run by one retailer are likely to result in BT coming under pressure from other retailers to offer them benefits that enable them to compete with those promotions. BTs internal documentation supports that analysis.

176 177

The complainants 7 June 2006 letter, page 2, footnote 4 and page 9, paragraph 38. The complainants 16 September 2005 and 7 June 2006 letters.
428. With respect to barriers to entry, having analysed the available evidence, (including the evidence of recent successful entry or expansion by, among others, MagicBox) Ofcom considers that there are relatively low barriers to entry and expansion. Indeed, the fact that Argos has been able to source consumer phones directly from manufacturers in the Asia-Pacific region may suggest that the reference market is in fact a global market, or at least that the possibility of some retailers sourcing phones directly from manufacturers in the Asia-Pacific region exerts a constraint on BTs ability to price independently of competitive pressures. 429. Taking all of the circumstances described above together, Ofcom finds that BT is not dominant in the relevant wholesale market. In reaching that conclusion, Ofcom has taken into account its examination of BTs pricing behaviour (discussed below), having had regard to the complainants allegations that BTs pricing strategy, and the reputational effects generated by that strategy, had raised barriers to entry and were therefore relevant to whether or not BT should be found to have been dominant during the time period to which the complaints related.
Analysis of alleged predation
Was BT engaging in pricing below cost?
430. In the course of the investigation, Ofcom also considered evidence from BT in relation to its pricing and costs to assess whether, in the event that Ofcom had found BT to be dominant in any relevant market, its conduct could have been considered to be predatory pricing prohibited by Chapter II and Article 82. However, having regard to the relatively high level of BTs market share, Ofcom has also considered it appropriate to examine whether BT was pricing below cost and whether the complainants allegations of predation could be supported in the event that Ofcoms conclusion on dominance was incorrect. Ofcom undertook this analysis partly because of the allegations that the complainants had made that BTs pricing strategy had raised barriers to entry and was therefore also relevant to Ofcoms dominance assessment. Examination of predatory pricing by EC and UK 431. Predatory pricing is a strategy where a dominant firm deliberately incurs short term losses in order to eliminate a competitor and be able to charge excessive prices in the future.178 432. Both the European and the UK courts have considered predatory pricing in a number of judgments. The ECJ established the legal test for predation in the AKZO179 case as follows: (70) It follows that Article [82] prohibits a dominant undertaking from eliminating a competitor and thereby strengthening its position by using methods other than those which come within the scope of competition on the basis of quality. From that point of view, however, not all competition by means of price can be regarded as legitimate. (71) Prices below average variable costs (that is to say, those which vary depending on the quantities produced) by means of which a dominant undertaking seeks to eliminate a competitor must be regarded as abusive. A dominant undertaking has no interest in applying such prices except that of eliminating competitors so as to enable it subsequently to raise its prices by taking advantage of its monopolistic position, since each sale generates a loss, namely the total amount of the fixed costs (that is to say, those which remain constant regardless of the quantities produced) and, at least, part of the variable costs relating to the unit produced. (72) Moreover, prices below average total costs, that is to say, fixed costs plus variable costs, but above average variable costs, must be regarded as abusive if they are determined as part of a plan for eliminating a competitor. Such prices can drive from the market undertakings which are perhaps as efficient as the dominant undertaking but which, because of their smaller financial resources, are incapable of withstanding the competition waged against them.

has used to determine whether or not there is any evidence that BTs pricing of its cordless phones was anti-competitive.
Fixed and variable costs 455. Variable costs are defined as those that vary with the volume of goods supplied over the relevant time period (and average variable costs are total variable costs divided by the relevant volume). In assessing variable costs, two questions need to be considered:
What is the relevant time period over which to assess costs? What is the relevant measure of volume to consider?
456. Fixed costs are those costs that do not vary with the volume of goods supplied over the relevant time period. 457. In Ofcoms view a key factor in considering whether to use an incremental or variable approach to cost analysis is the cost structure of the business. For example, an incremental analysis is particularly suited to network based industries such as telecommunications. BTs handset sales business can be described as one of wholesale procurement and distribution where the largest costs are those of buying in manufactured handsets for resale and there is minimal investment in fixed assets (such as plant and equipment). In these circumstances a variable costs terminology is arguably more appropriate than an incremental one. The relevant time period and volume increment 458. Two factors are relevant in determining an appropriate period over which to assess costs:200
the period over which the low prices prevailed; and any other period relevant to pricing decisions in the business.
459. Generally speaking, the longer the period over which costs are considered variable, the larger the proportion of costs that are variable and the smaller the proportion of costs that are fixed. 460. The period over which the alleged low prices prevailed is significant because it provides a minimum time horizon. For example, if a price was a special offer for a single week or month, it may be relevant to consider costs that were variable during that week or month when low prices prevailed. However, if low prices had been sustained (without rising) for a much longer period (say one year), it is reasonable to expect that prices should cover the costs that were variable with output over that one year period. Otherwise, there is a risk that Ofcom could conclude that it would be reasonable for the dominant firm to fail to recover costs that could have been avoided (i.e. were variable) in the longer period.

501. The Internal sales shown in BTs management accounts relate to sales to internal sales channels other than BTs HC&HSD business (such as BT Northern Ireland and BTs on-line shop).214 502. Ofcom noted significant differences between BTs management accounts and regulatory accounts as summarised in Table 11 below:
Table 11 Differences between Management Accounts and Regulatory Accounts
'000 2003/4 Revenues Costs Profit 2004/5 Revenues Costs Profit

Source: BT215

Management accounts [ [ [ [ [ [
Regulatory accounts [ [ [ [ [ [

Difference

] ] ] ] ] ]

[ [ [ [ [ [

503. Differences are due to a number of factors including:
213 Provided in BTs response to Ofcoms s26 notice of 8 June 2005 contained in email from [ Hugh Kelly (Ofcom) on 17 July http://www.shop.bt.com/page/home 215 BTs response to Q11 of Ofcom's 4th section 26 Notice of 12 August 2005

] (BT) to

costs included in management accounts but not in regulatory accounts timing differences end of year auditing adjustments
504. BT were asked to provide a reconciliation between the two sets of accounts, but stated These costs are allocated using a 'total BT' allocation of costs, therefore attempting a reconciliation will not find a viable solution.216 BT did provide an indication of cost categories included in the regulatory accounts but wholly excluded from the management accounts as set out in Table 12 below:
Table 12 Differences between Management Accounts and Regulatory Accounts
2003/4 Profit as per management accounts Unexplained difference in revenues: Costs identified by BT as not in management accounts Maintenance SLRC Variance Plant Support IntProdChargefromCor Accomm Plant Net Capital Misc Apparatus Motor Transport General Computers Buildings AccommPlant(LndLrd) Office Machines Emp Profit Sharing Total CCA adjustments Other costs in regulatory a/cs but not in management a/cs Profit as per regulatory accounts [ [ [ [ [ [ [ [ [ [ [ [ [ [ [ 2004/5
[ [ [ [ [ [ [ [ [ [ [ [ [
] ] ] ] ] ] ] ] ] ] ] ] ]

Source: BT217

505. The Other category relates to costs in regulatory cost categories where some of the costs are included in management accounts but others are not. These are discussed further in paragraph 522 onwards. Analysis of monthly management accounts 506. In order to assess the monthly profitability of BTs cordless phones business and also the profitability of individual phone models, Ofcom requested a monthly breakdown of BTs management accounts for DECT phones and a sample of monthly profit and loss accounts for individual phones. 507. The revenues and costs in BTs detailed monthly management accounts analysis (and used for analysis of individual phone profitability) differed from the management accounts figures presented in BTs reconciliation of its regulatory accounts to management accounts. Differences are due to:

For a discussion on this topic see paragraphs 1.24 to 1.27 of the OFT economic discussion paper Assessing profitability in competition policy analysis, published July 2003 http://www.oft.gov.uk/nr/rdonlyres/c410132c-f322-47cd-8afa-38b13247a0ae/0/oft657.pdf. 229 Total revenues for product group P343 Cordless Phones 2004/5
regulatory accounts management accounts average payment terms
543. In addition, for comparative purposes, Ofcom has considered the costs of working capital provided by the complainants. These were stated to be between [ ]%and [ ]% of turnover230. 544. The working capital balances relating to the Cordless Phones product group and management accounts for cordless phones are shown in Table 16 below:
Table 16 cordless phones working capital requirements
Total working capital Cost of capital % Minimum return Implied return on capital on turnover % employed
Management accounts Regulatory accounts - working capital only Average Payment terms Competitor analysis

11.40% 11.40% 11.40%

Source: BT231
545. In order to calculate the minimum return on capital employed, Ofcom has applied an estimate of the weighted average cost of capital (WACC) to the total estimated working capital of the business. The WACC used by Ofcom was 11.4% as calculated in Ofcoms recent statement: Ofcoms approach to risk in the assessment of the cost of capital232 as applicable to BTs businesses (excluding BTs copper access business)233. 546. Differences between the working capital balances as per the regulatory accounts and management accounts can be attributed to: Timing: Management accounts are as at 31 March 2005, regulatory accounts are average of opening (1 April 2004) and closing (31 March 2005) balances. Neither sets of accounts balances are prepared in the required format on a monthly basis Analogue phones included in regulatory accounts but not in management accounts Revenues are treated differently in the two sets of accounts gross of discounts in the management accounts and net in regulatory accounts

230 231

As set out in Annexes 1 and 2 of the Complaint Email from [ ] (BT) to Hugh Kelly (Ofcom) 15 September http://www.ofcom.org.uk/consult/condocs/cost_capital2/statement/#content paragraph 8.There are arguments why an appropriate WACC for BTs DECT phone business would be both higher and lower than the average for BTs non-copper access business. For example, the DECT phone business requires very low level of fixed asset investment and the capital employed is therefore largely variable with the scale of the business. In this case the risk of underutilised assets is low suggesting a lower WACC. On the other hand the risk of poor purchasing decisions leading to losses or low profitability on individual models is relatively high suggesting that a higher WACC may be appropriate. It is by no means certain which of these two effects might be expected to dominate; even if one effect were stronger than the other it would be difficult to quantify any such difference in risk. Ofcom therefore believes that it is reasonable to use its estimate of the cost of capital for BTs non-copper access activities as a whole in considering BTs DECT phone business.

653. There is also evidence that BT considered maximising the benefit of selling surplus stock through requiring retailers purchasing the lower priced products to purchase other higher priced stock (see for example email from PP(BT, Commercial Analyst) to MM(BT, Commercial Analyst) and others 22 March 2004:268
We offer the Freestyle 2100 at 24.99, but limit stock to a tie in with a bundled offering ie if they want [ ]k of the Freestyle 2100s then they have to take an additional [ ]k of a bundled, or a mix of bundle offerings

264 265

Ref PP846 BT response to Ofcom 3rd s26 Notice of 14 July 2005 Vol 3 BT response to Ofcom 1st s26 Notice, Vol Competitive Landscape Forecast document attached to email from PP(BT) to AA et al dated 7 June 2004. In Vol of BTs response to Ofcoms S26 Notice of 14 July Ref PP186 BT response to Ofcom 3rd s26 Notice of 14 July 2005 Vol Ref PP808 BT response to Ofcom 3rd s26 Notice of 14 July 2005 Vol 3
654. Thus BT considered restricting the supply of aggressively priced (and therefore attractive to the retailers) Freestyle 2100 stock to those retailers also purchasing more profitable bundled packs (e.g. 3 or 4 phones in one pack for consumers to place around the home). For example, email from AD to JB ([retailer]) on 22 September 2004269, Regarding sale to [retailer] of a total of [ ] Freestyle 2100 units:
I am prepared to offer [retailer] [sic] [ ] per unit on the additional [ ] pieces which take this deal well below our cost price. In recognition of this and that we are supporting the clearance of the [ ]twin and trio and the [ ]single and Twin we would want [retailer] to take in the [ ]single and twin and the [ ]and [ ] single and twin for peak volume requirement to be discussed.
655. Whilst some of the wording in relation to the pricing of Freestyle 2100 indicates an aggressive approach by BT (there are references to we should be pushing the market from an aggressive bundle perspective and we must be aggressive on our bundle pack to really hit the competition where it hurts as that is where they are growing the market 270), BTs prime stated aim was to drive higher value sales and its approach evaluated the overall effect of the summer sales offer on BTs margins. Further, this series of emails indicated that BTs competitors were also focussing on the pricing of bundled retail sets: The major growth is around bundles and our entry level competitors have been focusing on this area, not around the entry level price point. This is obvious in the Argos catalogue with Binatone not going below 24.99 271: "All activity is around bundles at the moment with half price offers round twin's, trio's and quads. I would say that we would be better driving a half price message around this section. For example NTL have a 69.99 quad in comet!" 272 Thus BT appears to have strategically considered that its profits could be maximised by increasing sales of high margin bundles in a very competitive market by tying them to the limited supply of an attractively priced discounted models which was about to be withdrawn and replaced (the Freestyle 2100 was withdrawn in November 2004). 656. This is also evidenced in the Pricing Business Case for Summer Sale 2004 (Version 1, April 2004)273:

Number all documents supplied in response to this Notice and provide an accompanying index listing each document including the title, date, author and brief description of the content. Please also identify the authors of the correspondence and their role at BT.
Annex B to Notice of 14 July under section 26 of the Competition Act 1998
Position COO Financial Controller Head of Marketing Head of Sales Head of Operations Head of Voice Products Head of Business Services Director Commercial LOB leaders Commercial Analysts DECT Product Manager Others AA, AB, XX, LL, OO, PP, QQ, NN, MM Individuals AA, KK BB, UU CC, VV DD FF VV

WW GG, HH, II JJ

On 12 August to BT
1. In respect of the analysis provided in response to question 2 of the first Notice (response in annex 2.2): a. Confirm that the Gross Margin calculated in annex 2.2 does not include the following costs which are included in the gross margin calculation set out in BTs response to question 13 of the first Notice :
Sales Credits Warranty Returns Cost Credits ADP - User Guide & Packaging Alloy - Product Design Marketing A&P Exchange loss/profit (PPV) Other
If any of these costs are included in the analysis set out in annex 2.2 please provide details of which costs are included and reconciliation between the two gross margin calculations. b. Provide in electronic excel spreadsheet format a copy of the analysis provided in response to question 2 (response in annex 2.2) for each month in 2002/3, 2003/4 and 2004/5
c. Provide an explanation of why the volumes, revenues and costs in the analysis in annex 2.2 differ from those provided in response to question 13 of the first Notice. For example, in BTs answer to question 13, the volumes for [ ] in December 2004 equal [ ], whereas in BTs answer to question 2 (in annex 2.2) the volumes for [ ]in December 2004 equal [ ]; similarly, from question 13, SPP (inc freight) equals [ ] or [ ], whereas from question 2 this number equals [ ]? 2. To what does the SPECIALS sheet in your response to question 3 of the first Notice (response in Annex 3) refer? 3. Further to BTs response to question 5, provide in electronic excel spreadsheet format, copies of annual budgets for 2002/3, 2003/4, 2004/5 and 2005/6 for the Cordless DECT product range and for the Core (Traditional) business as a whole. All supporting spreadsheets should also be provided together with any accompanying descriptions or management summaries 4. Explain whether there are any sales included in the analysis provided in response to question 2 of the first Notice (response in annex 2.1) which are not included in the GFK data provided in response to question 13 of the first Notice whilst the two are not directly comparable in terms of time periods, the GFK data appears to contain lower volumes suggesting that not all sales are included. 5. In respect of the analysis provided in response to question 15 of the first Notice provide the same monthly analysis for 2002/3 and 2003/4 in electronic excel spreadsheet format. 6. Provide an explanation of working capital requirements of the DECT business. In particular, the average payment terms: a. To manufacturer b. From retailers c. From other significant customers Provide a calculation indicating the working capital requirements of the DECT phone business (using 2004/5 as an example), and to the extent that these are negative (ie net current assets are positive) explain how these are funded and if any corresponding cost of working capital is allocated to the business in either the management accounts or regulatory accounts. In respect of the analysis provided in response to Q13 of the first Notice 7. Provide an explanation of how foreign currency transactions are accounted for, including: a. When and how BT purchases foreign currency b. At what exchange rate is the cost of sales of phones sold in a month recorded? c. What does the foreign currency cost in the profit and loss account represent 8. What costs are included in marketing A&P? How are these calculated? How are these allocated? 9. How is R&D calculated, allocated and accounted for?

4. Which suppliers does [supplier] perceive to be its direct competitors in the UK wholesale consumer telephone equipment market? Is this competition across all model phones or only some? Please specify which. 5. Provide prices for typical (eg best selling) entry level, mid-range and top-of-range cordless phone models for each of the months during July-December 2004.
6. In [supplier]s view, was demand from any one retailer or group of retailers to reduce prices materially stronger than from others during the period January 2004 - March 2005? 7. In which European countries does [supplier] supply cordless phones? 8. Does [supplier] consider that retailers in the UK are in a particularly strong buying position compared to other markets? Can [supplier] describe which retailers are particularly strong and also how their buying power (if any) is exercised? 9. From [supplier]s perspective please describe the barriers to entry and exit in the consumer telephone equipment market in the UK. In particular: Provide an estimate of the up-front costs to supply a model otherwise produced for the continental market for sale in the UK (e.g. design new packaging, instructions). Are the variable costs for producing a phone for the UK market any different to those for other European countries? 10. Please provide prices for a typical (eg best selling) entry level, midrange and top-of-range cordless phone model for each of the months during July 2004 March 2005 (if available). 11. Please explain the rationale for any price reductions during the period. To what extent were your reductions driven by either (a) the negotiating or buying power held by other companies, such as competitors and/or
retailers in the UK market. (b) other factors. Please provide details in your answers. 12. Provide details of monthly gross margins for average entry level, midrange and top-of-range cordless phone models during the period January 2004 March 2005. 13. Explain the key differences between the UK market and other European markets which [supplier] supplies. In particular, Can [supplier] identify any particular market conditions which enable it to operate profitably in other markets but which are absent in the UK.? How different are wholesale and retail prices for cordless phones across Europe ? How do other terms and conditions vary? Provide a comparison of average net wholesale prices achieved for average entry level, mid range and top of range cordless phone models during 2004 for the UK (if available) and other major European markets
14. Would [supplier] consider re-entering the wholesale consumer telephone market in the UK? If so, please identify which factors would be important to this decision. 15. In your view, is a strong consumer brand a pre-requisite for entry into the UK market? Do you see this as a barrier to entry (a) for [supplier] (b) for other companies with no existing consumer or retail brand? 16. In your view, could new entrants with unknown branded phones be able to enter and expand in the market through sales at well-known retailers? 20 December to Amstrad 1. In which European countries does Amstrad supply fixed-line phones? 2. From Amstrads perspective please describe the barriers to entry and exit in the consumer telephone equipment market in the UK. In particular: Provide an estimate of the up-front costs to supply a model otherwise produced for the continental market for sale in the UK (eg design new packaging, instructions). Are the variable costs for producing a phone for the UK market any different to those for other European countries? If so, how and why? 3. Does Amstrad consider that companies in the UK market, such as retailers or other competitors, are in a particularly strong buying or negotiating position compared to other markets? Can Amstrad describe

Ofcom is interested in viewing monthly data for each of these values. Ideally, the raw data would be available in electronic format and would be in Excel (or a format that can be read into Excel such as Access). I would be happy to discuss this query in more detail.
30 June email from Binatone to Ofcom
Hugh/Tanya Please find below the following information that was requested by Ofcom at their meeting with Binatone: 1. BTP's Financial Accounts history back to 1999.
Detailed Management Accounts against budget. Agreed to send April 05.
5 July Email from Tanya Rofani to Argos
Sorry for the delay in replying to your email. At tomorrows meeting we would like to start the discussion with the following general queries How does buying process work? How does Argos decide what products it puts into catalogue? Is there a maximum number of suppliers of any one product type? Why does BT have such a high market share? How has the market evolved in the last 2 years? Are there other potential suppliers who could offer Argos phones of acceptable price/quality if Argos chose to include them? Quantities purchased. Who decides how much stock to take? Is there any negotiation between the two sides on quantities ordered? Do suppliers ever suggest Argos purchase less than they initially request? Does Argos get quantity discounts? How many deliveries do you get per season? Catalogue promotion. Do suppliers have to pay for special promotional placements in the Argos catalogue? Does Argos have a standard rate card for all their phone suppliers or is it individually negotiated? Do all phone suppliers purchase promotional placements in the Argos catalogue and are any suppliers refused? Promotional support. Does Argos get promotional support from its phones suppliers? If so what form does this promotional support take (e.g. paid for TV or radio advertising, promotional flyers in addition to the two seasonal catalogues, in store placements/posters etc.) Pricing and discounting policy: How does Argos determine the prices it charges for the phone products it stocks? Are suppliers involved in the Argos pricing of the phones they supply? How are phone products discounts determined? Do suppliers provide rebates for phones Argos discounts and when Returns How does it work?
How does BT compare to others? General Does Argos earn same margin from all suppliers? Data: Monthly sales/returns for all DECT phones for last 3 years Gross margin details for each phone on a monthly basis for last 3 years