Select Committee on Trade and Industry Minutes of Evidence



  Cable & Wireless (C&W) welcomes the opportunity to submit evidence to this inquiry, and in line with the Committee's press notice (PN26 99/00) will focus on the issue of the unbundling of the local loop.

  Competition in the direct access (local loop) market is a necessary step to ensure full competition in telecommunications. C&W has been closely involved and supportive of the process to introduce competition in the local loop since the idea was first put forward in the UK in 1999. The development of Digital Subscriber Line (DSL) technology, enabling the transformation of copper wire into a broadband delivery path, has provided the necessary stimulus for telecommunications operators to develop commercial investment strategies. If successfully implemented these strategies will offer consumers, both residential and business, real choices in terms of price, innovation and service delivery.

  C&W is committed to investing in the market for DSL services, but shares the concerns widely aired by operators and others in recent months regarding the precise path by which unbundling is taking place. These are detailed below.


  For C&W, the major problem concerning LLU remains the extent to which BT has been able to exploit its dominance in the local access market—a function of it being a former nationalised monopoly—to slow down implementation of LLU and secure for itself significant advantage in the emerging DSL market.

  More specifically, these concerns are:

    —  BT securing for itself space in all key local exchanges for its own DSL equipment, positioning itself to provide a near-universal service.

    —  BT failing to devote sufficient internal resources to ensure an efficient delivery of space to other operators.

    —  BT rolling out its own DSL investment and commercially available services, while at the same time holding back the services of other competitors and ourselves. (Indeed, BT have just announced plans to accelerate their roll out of DSL services—see BT press release NR0085, 2 November 2000)

  While ultimately the source of these problems is BT, to some extent it could be argued that its behaviour is no more than the rational response of an incumbent seeking to protect its dominant position. However, this is precisely why an independent regulator was established: to ensure effective competition takes place by preventing abuse by the incumbent of its dominant position. While not wishing to underestimate the difficulties inherent in such a role, particularly with regard to unbundling the local loop, serious questions have been raised regarding OFTEL's performance in this respect. Conceivably, OFTEL could be accused of under-performing at two fundamental levels:

(a)   Failing to devise the appropriate regulatory structure

  OFTEL must take some responsibility for failing to include in BT's licence specific conditions requiring it to offer access to the local loop at an early stage. The effect of this was to effectively limit its own ability to regulate BT. The licence condition did not become effective until August 2000, a full nine months after OFTEL's initial decision to require local loop unbundling.

(b)   Failing to get sufficiently involved in on-going, detailed implementation

  It has become apparent that the failure on the part of OFTEL to become closely involved in the process has been a major factor in the current state of affairs. Specific examples include:

    —  Having announced on 11 November 1999 that BT should unbundle its local loop by July 2001, OFTEL did not specify the process, products, prices or timeline in any detail. Instead, OFTEL chose to leave these to "commercial negotiation", in our view failing to recognise the in-built inequality of the situation: the balance of power was inevitably heavily weighted towards BT by virtue of the fact that it controlled all assets and information.

    —  To design the process to allocate space in BT sites (the "bow wave process"), industry requested that BT supply:

      (i)  information about the availability of space;

      (ii)  a commitment from BT to deliver co-location space at an agreed volume per month.

  Without this information operators were unable to establish a process to account for BT's inability to fulfil our orders for space. Industry sought OFTEL's active assistance in this matter but as yet the issue remains unresolved.


  Currently, operators are uncertain as to how long BT is required to prepare and make available co-location space in exchanges to operators. While BT is contractually committed to deliver sites within nine months from when the process commences, OFTEL believes BT should deliver within four months. BT has failed to commit sufficient internal resources to making sites available to competitors, and the uncertainty means commercial sites becoming available to operators anytime between March and August 2001. Failure to resolve this uncertainty represents a major obstacle for operators seeking to invest and deliver DSL services. The earliest operators will be able to offer customers DSL services is July or August 2001, and even then only in a limited number of commercially relatively unattractive areas.

  This contrasts starkly with the position of BT, which launched its own commercially available DSL service—Openworld—in July 2000 from 516 sites. Not bound by the bow wave process and its problems of prioritisation and allocation of space against strong demand, by the middle of 2001 BT is likely to be able to offer services from around a third of UK exchanges. Significantly, this third will represent the most commercially attractive sites. In addition, BT has installed its own equipment in some sites that are explicitly prohibited ("blacklisted") to other operators.

  A number of operators submitted a formal complaint to OFTEL on 28 September alleging that BT have acted in an anti-discriminatory manner, urging the regulator to act under either the 1984 Telecommunications Act or 1998 Competition Act. Specific allegations include:

    —  BT is discriminating in favour of its own retail divisions (Openworld and Ignite) by providing them with information, facilities and access to copper loops that are being denied to its competitors.

    —  BT is exempt from the bow wave process, thereby ensuring it has a significant competitive advantage in terms of access to facilities.

    —  A number of blacklisted sites (those where access is being denied to competitors) have been fitted with BT equipment.

    —  BT has exempted itself from the same costly and bureaucratic requirements for site surveys being demanded of commercial operators.

  In addition, operators have submitted to OFTEL a complaint concerning the contract negotiations. Specific complaints include:

    —  That co-location arrangements discriminate against competitors.

    —  The service contract between BT and individual operators includes unreasonable rights of interference by BT with operators equipment and unreasonable powers for BT to impose penalties on competitors.

    —  BT have refused to disclose information regarding the resources it has committed in support of its own DSL services compared to that being made available to competitors.


  Both of these complaints are currently with OFTEL and the industry awaits a speedy determination that recognises the discriminatory manner in which BT is behaving. Without a satisfactory outcome to these complaints, the logjam currently being experienced within LLU will become further entrenched. Such an outcome will not increase the attractiveness of investing in DSL, thereby potentially threatening the Government's objectives for delivering "broadband Britain" and making the UK one of the world's leading centres for e-commerce.

  The recent critical public debate concerning LLU has resulted in an increase in the attention and resource being devoted to the problems by OFTEL. C&W welcomes this development and looks forward to working with OFTEL to help bring the process back on track, trusting that it is not too late to salvage the situation.

  C&W wish to make clear that it rejects any assertion that OFTEL's failure was simply one of ignorance borne of a failure by industry to communicate its concerns. Representatives from OFTEL attended meetings between BT and industry throughout the process and were therefore exposed to the reality of the problems industry was facing in negotiating with BT. Failure to communicate these problems within OFTEL, not to mention failing to fulfil actions it committed to, was a significant contributory factor to the situation we now face.

  It is imperative that together, OFTEL and industry successfully tackle the current situation whereby BT is securing for itself significant first mover advantage by leveraging its dominance in upstream markets will result in a BT-dominated UK DSL market. Such an outcome would result in a failure to deliver innovative, high quality and competitively priced services to consumers, and seriously hamper the competitiveness of the UK.

November 2000

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