UK: Broadband Britain: Rhetoric vs Reality

Last Updated: 19 November 2001

In February 2001 the Government set the UK a goal - "to have the most extensive and competitive broadband market in the G7 by 2005"1. The E-envoy's UK Online Action Plan2 set out a blueprint for achieving this, and the Government appointed Broadband Stakeholders Group was tasked with making implementation recommendations. Despite these efforts, in terms of broadband penetration the UK currently ranks a dismal 22 out of the 30 OECD countries3. To date, the Government's efforts have largely focused on stimulating consumer demand for broadband services. Many argue, however, that the root cause of broadband's failure to thrive lies within the UK regulatory regime.

This article considers key regulatory aspects of two broadband case studies from the telecoms sector, and one from digital broadcasting, and draws some lessons for the forthcoming 'converged' Communications Bill regulatory regime.

Local Loop Unbundling ('LLU')

In the UK, LLU essentially refers to the process whereby BT's competitors ('OLOs') are granted regulated access to BT's local loop network to offer their own broadband (and voice) services. To do this, OLOs require physical access to BT's network infrastructure (local exchanges, ducts etc) to install and maintain their own equipment.

Much of the regulatory debate has centred around the terms on which this physical access will be provided - in particular whether the standard form ANF (Access Network Framework) Agreement terms BT proposed were 'reasonable' as required by Condition 83 of BT's Licence. Sticking points included access prices, equitable allocation of exchange space, physical access arrangements, and service levels. While Condition 83 was inserted into BT's Licence in April 2000 - taking effect in August that year - negotiating the ANF terms has been a protracted process, with the OLOs referring several disputes to OFTEL for determination. At the time of writing, a dispute over service levels is still ongoing. In the meantime, of the 50 OLOs originally involved in the LLU process, only 5 are still participating4. BT claims the withdrawals indicate a lack of demand5. Critics argue the high drop-out rate is an indictment of the protracted delays inherent in the regulatory process. They claim these, exacerbated by the lack of real incentives for BT to negotiate, made further participation by many competitors uneconomic. Whatever the reason, to date only 150 lines have actually been 'unbundled' for use by OLOs. In the meantime, BT has pressed ahead with roll-out of its own retail ADSL service to 80,000 customers6. Despite OLO protests, OFTEL has ruled this is not anti-competitive.

Partial Private Circuits ('PPCs')

PPCs are partial leased lines, providing transmission capacity at various bandwidths up to 2.4 Gbit/s (i.e. including broadband) between customers' premises and an OLO network point of interconnection. The OLO provides capacity over its own network to complete the circuit to the customer.

Although PPCs have historically been available from BT on a retail basis, OLOs claim reselling these to their customers is not commercially viable. As a result, BT has come under increasing OLO pressure to offer interconnect (ie effectively wholesale) versions of the PPC product. This culminated in one OLO lodging a formal complaint with OFTEL in May 2000, claiming that despite negotiating with BT since 1998, they had been unable to reach agreement on PPC interconnect supply terms. OFTEL investigated and in March 2001 issued a Direction requiring BT to offer PPC interconnect products at 'cost-oriented' prices and on non-discriminatory terms. OFTEL's Direction set BT an eight week period for concluding negotiations with ten OLOs, with a further six weeks for implementation. Although BT provided Agreement terms after eight weeks, eight OLOs claimed these did not reflect what had been negotiated, and contained unreasonable provisions. Moreover, lack of information about BT's cost base made it difficult for them to assess whether BT's prices were indeed 'cost-oriented', and the terms non-discriminatory. The OLOs referred these issues to OFTEL for determination. BT in turn insisted OLOs sign the Agreement if they wished to receive service from the August 2001 launch date and take advantage of the six month window for migration from the retail PPC products to the new 'cost oriented' interconnect versions. Although the OLOs signed up, many claimed to be acting under duress. At the time of writing, OFTEL is still investigating the OLOs' complaints.

Access Control Services ('AC Services')

AC Services are supplied by digital broadcasting platform operators (eg Sky Subscriber Services Limited ('SSSL')) to third parties who wish to supply non-television digital services to end users (e.g. home banking, home shopping, interactive games). While not of themselves broadband services, they enable the provision of 'near to broadband' services over the digital television platform.

AC Services are supplied under the AC Class Licence. OFTEL administers the Licence, and has designated SSSL as a 'regulated supplier' of AC Services due to its dominant market share. SSSL must therefore supply AC Services on 'fair and reasonable' terms and must not unduly discriminate against customers. Again, as with PPCs, lack of transparent information about SSSL's costs and internal transfer pricing makes judging what is 'fair and reasonable' and non-discriminatory difficult. Lodging a formal complaint with OFTEL - the only regulatory remedy - risks bogging the parties down in a lengthy and potentially adversarial enquiry, and SSSL's status as the dominant supplier may mean purchasers are reluctant to take steps which potentially sour their business relationship. Hence, as things currently stand, many take the view that these enforcement difficulties mean the current regulatory regime is of little practical assistance to potential purchasers of AC Services.

Conclusions

Critics of the current regulatory regime believe experiences like these demonstrate its unsuitability to the increasingly dynamic Communications sector. Common themes include:

  • incumbents' reluctance to negotiate their standard terms;
  • difficulties with verification of pricing and non-discrimination obligations due to lack of transparency; and
  • perceptions that current regulatory mechanisms are unable to deliver sufficiently timely results.

The new Communications Bill regime offers an ideal opportunity to learn from past difficulties and incorporate that learning into new regulatory mechanisms. Possible suggestions for improvements include:

  • replacing the current 'regulator as broker' model with third party alternative dispute resolution, incorporating fixed timeframes, in an effort to achieve more speedy and commercial outcomes;
  • incentivising incumbents to negotiate by introducing ex-ante prohibitions preventing roll-out of competing retail services while negotiations on wholesale access terms are still unresolved; and
  • reassessing whether vertical integration of incumbents is desirable - eg in the telecoms context, might a radical restructuring of BT's wholesale and retail arms, along the lines proposed by the Earthlease and West LB consortia, in fact be preferable?

Proponents claim that, if these issues are not addressed, the main losers will be UK consumers - whose opportunities for real choice will be delayed or denied. Longer term, this will be to the detriment of the UK economy, and may well undermine the Government's ambitious broadband goals.

Useful URLs

  • http://www.e-envoy.gov.uk/ecommerce/broadband/index.htm
UK Online: the broadband future (Feb 2001)

  • http://www.e-envoy.gov.uk/ecommerce/broadband/bbsgrep_menu.htm

Broadband Stakeholders Group First Report (Sept 2001)

  • http://www.oecd.org/pdf/M00020000/M00020255.pdf

OECD Broadband Report (Oct 2001)

  • http://www.oftel.gov.uk/publications/internet/internet_brief/broad1101.htm

OFTEL Broadband & Internet Brief (Nov 2001)

 

FOOTNOTES

  1. UK Online: the Broadband Future, Office of the E-envoy, February 2001
  2. http://www.e-envoi.gov.uk/ukonline/progress/actplan/table.htm
  3. The Development of Broadband Access in OECD Countries, OECD, 29 October 2001
  4. Has Broadband Britain Come Too Late?', Richard Wray, The Guardian, 7 November 2001
  5. Connecting the Country - an engineering approach to broadband Britain, Sir Peter Bonfield, The 2001 Hinton Lecture, Royal Academy of Engineering, September 2001, p 7
  6. Ibid.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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