Select Committee on Trade and Industry Minutes of Evidence


  Kingston Communications (KC) welcomes this opportunity to draw to the Committee's attention the current state of the Oftel managed rollout of local loop unbundling (LLU). Our submission focuses on LLU not only to address key problems with the current process but as an example of the need for change in the way our fast moving and converging industry is regulated.

KC is in a unique position within the LLU debate:

    —  KC was amongst the first telecoms company to deploy ADSL technology for mass market use. The company has used ADSL since 1994 and now offers a broadband portal—Kingston Interactive Television—which allows customers to access digital multi-channel television, on-demand programmes, internet/e-mail and local information services—we have done it and we know how it works.

    —  KC hopes to deploy national ADSL services that will provide the full range of digital services to both residential and business customers. Our experience has shown us that market trends point towards this growth being video rather than telephony led.

  We are committed to ensuring that roll-out of LLU is nationally successful but feel that the parlous state of Oftel's current process (prompting an unparalleled number of requests for determinations and complaints) begs the following questions to Oftel:

Why has Oftel underestimated the need for speed?

  The roll out of LLU is many times slower than it needs to be.

  The Government has clearly stated its desire to place Britain at the forefront of the knowledge economy. Competitive products, using the digital local loop, are a vital part of keeping Britain ahead but Oftel's chosen timetable elongated by the "deny, delay, degrade" policies of BT will ensure that Broadband Britain will not be achieved by the Government's target of 2002. The currently proposed initial rollout pace of 10 exchanges per month for independent operators is a tenth of that achievable. This pace is being set by a BT with no legal responsibility to ensure that Broadband Britain is delivered "in internet time" rather than BT time.

  The UK is now far behind the USA in delivering mass-market DSL services. It is our fear that BT's anti-competitive prevarication will push the UK way down the digital league table. Whilst BT is allowed to treat its "domestic" market as a private fiefdom, competitive delivery of new services will be a perpetually frustrating and difficult process.

Why has Oftel underestimated the importance of television services in provision of DSL services?

  LLU is not only about faster internet services for a narrow market sector but, particularly for domestic consumers, embraces video on demand, broadcast TV, interactive TV, internet via TV as well as high speed internet access, telephony and videophone. Oftel's current practice of "thinly" spreading access to LLU will ensure that TV-hosted services will not be available unless an operator is fortunate enough to be allocated a "doubled up" allocation (6 racks as opposed to 3 racks). Oftel is now re-consulting on this policy in the "Consultation on Local Loop Unbundling Bow Wave Process". But this document addresses a fundamental issue of policy in a technocratic manner with no mention of the potential needs of domestic consumers or even television in its 57 pages.

  It is natural for Oftel that they approach this as a telephone/internet matter rather than giving sufficient weight to the television and multi-media aspects of service delivery. Short-term commercial advantage may well focus commercial companies on the business internet market but if real gains are to be made for an informed e-Britain then having a full digital multi-media communications package in peoples' homes is vital. If the bulk of allocations are "3 racks" then, at best an inevitable lengthy period of industry consolidation will follow this regulatory process to allow companies such as Kingston to obtain the share of the local loop needed to deliver true digital services to residential customers.

Why has Oftel not prioritised national roll-out?

  One of the Government's key policy objectives is to achieve Broadband Britain by 2002. But the present rollout does not guarantee comprehensive coverage, rather it encourages "Broadband Blackspots". There will be a geographical digital divide. By 2002 some areas will have at least two choices of broadband fixed line services whilst the majority of the country will have none. For example Oftel has allowed BT to prioritise its roll out not in areas without broadband services but the areas of the country in which broadband is already delivered by cable. Hence areas without any broadband delivery will have to wait longer than necessary and will receive a dominant BT service whilst independent operators have to wait BT's leave to install. Similarly, Oftel has preferred to "thinly" spread allocation to the local loop, exchange by exchange, small unit by small unit, this system mitigates against companies wishing to provide a national roll-out of consumer products. Economies of scale which will allow for less profitable areas to be covered within national footprints cannot be planned for under Oftel's current roll out process. It is inevitable that areas of modest population density will miss out.

Why has Oftel taken a "reactive" stance to BT's reluctance to properly commit to the LLU process?

  At first, Oftel chose to implement LLU by a industry driven self-regulatory process. But LLU is not an appropriate policy area for such a self-regulatory approach. There is no common cause between BT and other operators. In fact, Oftel's actions contradict its own policy set out in the June 2000 document Encouraging self and co-regulation in telecoms to benefit customers:

    "S5 Self-regulation, as distinct from co-regulation, will depend on the extent to which stakeholders have a common interest in co-operating with each other."

  The decision of Government to achieve LLU by a licence amendment rather than through legislation has ensured that persuasion is the main tool available to Oftel in encouraging BT to facilitate a swift and competitive rollout of the local loop. Oftel's chosen means of implementation has made it reliant upon subjective information from BT. Throughout this process Oftel has been one step behind BT.

  Kingston has taken a full and active role in the industry driven process. We do accept that the lack of real and effective progress was evident some months ago. We do not accept that this was invisible to Oftel and are deeply concerned that communications between industry and Oftel were so defective that appropriate remedial action was not taken sooner.

Why does Oftel apply the same approach to BT whether the services are new or based on its former "nationalised" services?

  It would be ridiculous to suppose that phone boxes should be regulated according to similar basic parameters as dial-up internet access or LLU but Oftel does.

  Oftel allows BT to bring out its retail product before its wholesale product giving BT a head start in markets for new services. This happened with fixed rate access to internet services (Surftime/FRIACO). Similarly, BT's Openworld ADSL product will have a full year's head start on competitors making use of LLU. BT receives such an advantage not due to a history of innovation—in fact, it is well documented that BT is not an innovator in provision of services. Yet again BT's competitors will be playing "catch up" not for legitimate historical reasons but due to regulatory timidity.

  In summary KC believes Oftel's approach has been to focus on technical details whilst missing the broader policy objectives requiring rapid and effective LLU deployment. KC is currently engaged in meeting with Ministers and Oftel along with other major players in industry in the hope that LLU can be put back on track. We are, however, concerned that such late talks may be an attempt to "lock in" BT once they have already bolted and gained a significant head start on their true competitors.

November 2000

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