MEMORANDUM SUBMITTED BY CABLE &
WIRELESS PLC
INTRODUCTION
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.
BACKGROUND
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.
THE CURRENT
SITUATION
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.
CONCLUSION
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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