MEMORANDUM SUBMITTED BY ATLANTIC TELECOM,
EASYNET, IOMART, ONCUE TELECOMUNICATIONS AND VERSAPOINT
This memorandum is designed to assist the Trade
and Industry Select Committee with its ongoing investigation into
the work of OFTEL and, particularly, local loop unbundling ("LLU").
Each of the operators has been actively involved in the LLU process
and has submitted orders for collocation space in both the first
ordering round and the second ordering round. Three of the operators
are actively involved in unbundling in other countries as well
as the UK. Their commitment to the LLU process represents an investment
amounting to several hundred million pounds and will lead to the
creation of a substantial number of new jobs in the UK. For more
information on the contributors, see the Appendix.
Why is LLU important?
"Information, and access to information,
continues to be the key driver of the growth and development of
the Information Society and the knowledge driven economy"
OFTEL, Access to Bandwidth: Proposals for Action, a Consultation
Document issued by the Director General of Telecommunications,
July 1999.
LLU will open up the local access portion of
BT's network to vigorous competition, thus eliminating the final
barrier to the competitive provision of broadband services to
customers. Broadband services include fast Internet access, fast
data inter-site links, media services, business application services,
and alternate voice services.
What is the goal of LLU?
LLU will enable unrestricted access to broadband
services by removing BT's stranglehold on its ubiquitous national
local loop.
This process is not about backbone networks.
Since liberalisation in 1984, tens of billion pounds have been
invested in broadband trunk and local networks but as we have
seen, it is simply not viable to replicate BT's ubiquitous national
local loop network. This is reflected in the fact that BT has
retained about 80 per cent of the residential market and between
60-70 per cent of the business market in the UK.
Even if it were possible to roll out one or
a patchwork of local access networks, customers would still not
have free and unrestricted access to a full choice of competitive
services. Customers would be locked in by their network provider.
BT's local access network is made of up ducts
and copper and approximately 6,500 local exchange buildings. We
believe that it is vital for public's substantial sunk investment
in this network be unlocked for the benefit of everyone.
How do you deliver broadband services over copper?
Copper lines need to be turbo-charged and effectively
widened to get high bandwidth broadband services to the home and
business using copper. The best available method is Digital Subscriber
Line ("DSL") technology. DSL has certain limitations
concerning the distance over which it can be provided.
What does this mean in practice?
The best way for operators to provide services
over unbundled local loops is for them to locate their equipment
in BT's local exchanges ("collocation").
Most operators would rather not fight BT for
fair and reasonable access to its local exchange buildings but
their choices are constrained by the physical limitations of DSL—enabled
loops. Operators can use distant collocation, which involves installing
equipment at premises in close proximity to BT's local exchange
buildings but doe to the physical characteristics of the cooper
loops, the effectiveness of DSL is reduced the further you are
away from the BT.
As BT itself has found, even putting DSL equipment
in its own exchanges does not mean that all its connected lines
can be turbo-charged.
Why not let BT have the monopoly on DSL-enabled
lines and force them to sell services to their competitors over
those lines?
BT started to enable DSL lines once it became
clear that OFTEL intended to mandate LLU and free and open access
to BT's local exchange buildings. BT has currently fitted out
615 exchanges using its chosen DSL equipment and has plans to
increase this to 839 by March 2001.
Since June 2000, BT has provided a wholesale
product to its competitors. BT's wholesale prices are not regulated,
and indeed are subject to a number of complaints submitted to
OFTEL by a number of operators and Internet Service Providers.
As of November 2 2000, a grand total of 18,000
customers have been connected. BT woefully underestimated the
complications of DSL installation and roll out. Despite intensive
demand from customers and from service providers, the supply has
been rationed.
BT has recently announced plans to ration operators
even more by restricting the number of customers they can connect
from January, with successful suppliers having their daily "quota"
reduced from nearly 100 lines per day to just 20 lines per day,
and other suppliers being rationed to one or two lines per day.
This is in spite of a clear and vibrant demand and forecasting
process in place since April 2000.
At this moment, it is not clear if BT's own
Openworld offering is having its installation ability rationed
in the same manner as the other Operators.
We believe that such an outcome is inevitable
when one technology is chosen by one operator for UK plc. As always,
it is the customers, crying out for faster Internet access, and
the suppliers who are able to supply these customers, who lose
out.
How can the benefits of broadband be brought to
customers?
We believe that a range of operators using a
range of technologies to provide a range of broadband services,
both regionally and nationally, at competitive prices can best
satisfy customers' unmet demand for the widest possible variety
of services. This can only be achieved by having access to BT's
exchanges and copper on a transparent and non-discriminatory basis
on reasonable terms and conditions.
What do we have so far?
We do not have transparent and non-discriminatory
access and we do not yet have reasonable terms and conditions.
Indeed, we do not even have access. If we compare BT's ease of
access and its achievements of DSL installations at 615 exchanges
to date, competitors are only just having sites handed over for
the first kit installs at their trial sites, after starting in
April 2000. This is a total of 9 months pre-preparation for five
sites.
A direct UK comparison based on the current
allocation to operators of space at BT's local exchanges would
show that it would take the operators over 30 years to achieve
parity with BT's own roll out.
In France, it took an average three months (which
included in some cases the granting of temporary licences to trialists),
with the first live unbundled customer operational within two
months, for trialists to install equipment at their trial sites.
Today, over 31 operators are trailing DSL services in France.
In Germany over 50 companies have licenses,
and thousands of collocations are live. In the Netherlands over
200 sites are now live.
In the UK, the five trial sites will be up and
running contemporaneously with commercial services, to be available
at a promised 190 sites by end June 2001. Compare this to BT's
own 839 sites by March 2001.
A very limited promised supply of loops should
be available, approximately 2,000 in the same period across the
whole industry. That works out at 63 per BT local exchange site.
Each site is of course going to be shared between 10's of competitive
operators.
How have we got here?
Negotiations opened in July 1999. It has been
a long, gruelling and resource-intensive process. This form of
self-regulation, where industry seeks to negotiate commercial
solutions with BT, cannot and indeed has not produced fair and
equitable results.
This should come as no surprise as it repeats
a pattern first established in the early years of liberalisation.
In that pioneering time, it took around three years unsuccessfully
to conclude a commercial agreement on interconnection with BT.
OFTEL was asked to step in and had to make a determination. It
has been intimately involved in interconnection ever since.
For LLU however, the industry, acting initially
without the benefit of an LLU mandate, again took up the cudgels
to attempt to get a commercial agreement from BT on LLU. At every
critical stage, this approach has inevitably failed, requiring
the industry as a whole to refer matters to OFTEL for timely and
effective resolution.
How can the UK catch up with the US, Austria,
France, Finland, Denmark, the Netherlands, Germany and Sweden?
OFTEL must use the full range of powers available
to it to enable competitors to enter the market on a level playing
field with BT.
We are glad that 14,000 customers to date can
get access to broadband services using BT's DSL-enabled lines
but this is not good enough for UK plc.
Some may argue that BT should be stopped from
further damaging competition and building on its headstart. We
believe that the positive and most effective response is for OFTEL
to focus its attention by using all the powers at its disposal
to ensure that competitors can enter the market secure in the
knowledge that the environment is fully transparent, non-discriminatory,
quick and reasonable, and that the key supplier offers its copper
and its local exchange buildings at cost-based prices.
We would hope that OFTEL should employ a similar
approach to BT's wholesale DSL-based service. We are aware on
a number of ongoing formal complaints that aim to secure a competitive
offering from BT to its competitors.
What are OFTEL's existing powers to act?
BT is primarily regulated by means of its licence.
Unless BT is specifically required to do something under its licence,
OFTEL can rely on its powers under the Competition Act 1998, in
particular in relation to the prohibition on abuse of a dominant
position.
OFTEL in April 2000, modified BT's licence so
as to include an LLU mandate at Condition 83 of BT's licence.
Condition 83 came into force in August 2000. This obligation was
effectively negotiated between BT and OFTEL and inevitably contains
areas of compromise.
This negotiation flowed from the licence modification
rules—under the Telecommunications Act 1984, a licensee
must consent to a modification or the proposed modification is
referred to the Competition Commission. OFTEL did take into account
some operator concerns but it seems inevitable that the regulator
would be keen to obtain BT's consent in order to avoid a having
to refer the matter to the Competition Commission as the only
way to secure modification of BT's licence.
Where Condition 83's compromise areas prove
difficult in practice or act as barriers to achieving policy objectives,
it is open to OFTEL further to modify BT's licence and change
the terms of Conditions 83. OFTEL could do this either with BT's
agreement or, if that was not forthcoming, by referring the matter
to the Competition Commission. This could take some time but it
would be worth it to get the regulatory regime right.
In the event of a breach of any current requirements,
OFTEL has a range of options that it could use to ensure fair
competition. OFTEL can enforce Condition 83 using its statutory
powers under the Telecommunications Act 1984. OFTEL can grant
rapid relief to operators about to suffer loss or to address potential
licence breaches using provisional orders. Continuing behavioural
issues can be addressed using final orders. OFTEL can issue orders
following explicit complaints or after an investigation on its
own initiative.
OFTEL has powers under the Competition Act 1998
to act against abuse of a dominant position. OFTEL therefore does
have power to grant rapid relief where this is warranted. Ultimately,
organisations found to be breaching the Competition Act can be
fined. To date, OFTEL has chosen to rely upon its powers under
Condition 83 and BT's licence.
What does this mean in practice?
OFTEL must rigorously audit BT's behaviour and
the resources and capabilities it has put in place to meet the
reasonable demands of the industry (as expressed informally in
January and in June 2000 and formally on 12 September, 2000 and
7 December 2000).
Where difficulties arise which threaten the
process, OFTEL should seek swiftly the fastest way to resolve
this, whether by issuing a subject specific policy statement after
consultation with interested parties or by relying on its existing
powers to address such threats. OFTEL has not, in the past, acted
as quickly as it might have.
What in the short term are the next major issues
of concern?
The short term issues of principal concern are:
BT's resources or lack thereof and the costs of the process.
OFTEL must ensure that BT has or will have sufficient
resources to free up the local access bottleneck. This is straightforward
where the resources are external. For example, BT has employed
external building contractors and surveyors to scope out the possibility
of applicants being housed in BT's local exchange buildings and
then design the solution.
Where the resource issue concerns BT's ordering
and provisioning systems to connect loops and related software
systems to automate otherwise manual processes, the issues are
many and complex but come down to making the resources available
effectively to enable operators to submit their orders for local
exchange space and for loops. This area is traditionally the area
causing greatest delay to the introduction of new products and
services by BT.
Space in the local exchange buildings is also
a resource. Any unallocated space in the local exchange buildings
should potentially be available to operators for installation
of their chosen DSL equipment. Currently BT is not offering space
other than in separate and potentially costlier rooms. Another
option is distant collocation but given the physical limitations
of DSL, this may not be the optimal solution for the provision
of high quality broadband services to customers.
There remains substantial uncertainty and lack
of transparency surrounding the costs of obtaining access to BT's
local exchange buildings and related services. There are some
interesting examples of what BT considers to be reasonable space
preparation, for example, repainting, floor coverings, and additional
building security systems and separate access, all of which adds
both to cost and length of time taken to prepare collocation space,
and seem at best curious and at worst, spurious.
13 December 2000
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