MEMORANDUM SUBMITTED BY BRITISH TELECOMMUNICATIONS
PLC
1. EXECUTIVE
SUMMARY
1.1 The UK is well to the fore in Europe
in terms of E-commerce. It has also been benchmarked by the EU
as having the most competitive European communications market.
The two facts are connected. UK customers already have a far greater
choice of supplier than in any other EU member state. The UK's
unique policy of encouraging infrastructure competition, most
visibly in terms of the cable TV companies, means that some 52
per cent of the population (12.6 million households, roughly 31
million people) have a choice of local loop supplier. Around 5
million customers have already exercised that choice by using
a competitor of BT's for their local access. In Germany, despite
the hype about the success of LLU, only some 150,000 lines have
been unbundled: there are thirty times as many people using a
non-incumbent local loop in Britain as there are in Germany.
1.2 BT has staked must of its future on
Europe as its home market and BT wishes to push forward as aggressively
as possible with local loop unbundling across the whole of the
EU. Any other stance would not make commercial sense. However,
it is often not appreciated that until recently, official UK policy
as publicly stated both by DTI and by Oftel was that local loop
unbundling was undesirable in the UK. The nature of the competitive
market was different—many other steps had been taken in
interconnection and in indirect access—and it was the view
of previous Conservative Governments and the initial view of this
Government that unbundling would damage competitors building competing
infrastructures such as cable companies. It was this philosophy
that led to BT being banned from carrying television signals across
its network—indeed, BT is still not allowed to broadcast
over its local network.
1.3 Therefore the "starting gun"
for local loop unbundling was fired later in the UK than in Germany
or the Netherlands, where liberalisation was approached from a
different conceptual standpoint. Despite this later official mandate
for unbundling, the UK is progressing well in developing LLU and
we are confident that the UK will be up with the leaders in its
development.
1.4 The EU and Oftel recognise that LLU
is a technically complex project which requires major construction
works. We are working very hard to overcome many real practical
challenges. The issues are not so much to do with technology,
but with the physical world—finding space, building work,
planning permission, installing security systems and air conditioning.
All countries face the same problems. It takes time to develop
the automated back office systems which will co-ordinate the physical
and commercial processes that underpin successful unbundling.
More advance planning and organisation would have been (and still
is) possible if industry players were willing to take the risk
of potentially abortive investments.
1.5 BT has been seeking creative solutions
to these issues. We are grateful for the constructive approach
of some operators in working with us and would now ask all other
players to work with us on solutions to these constraints eg,
the need for a fair allocation process where demand exceeds supply.
For example, in order to overcome overcrowding, operators can
place their equipment in accommodation outside but close to the
BT exchange and directly connected to it. This is a practical
and effective method of speeding local loop unbundling, particularly
where there are space or other constraints. Some companies have
already approached BT for such arrangements for good commercial
and security reasons.
1.6 In the interim, BT has introduced wholesale
ADSL services. More than 100 service providers (BT's own service
provider, BT Openworld, is one) are customers, all treated equally
by BT and competing with each other. So there is already competition
in delivering broadband services using BT's local loop, as well
as the competition offered by cable networks. Companies seeking
local loop unbundling could start serving customers immediately
using this set of wholesale services and then transfer their customers
over to unbundled lines as they become available. In Germany,
by contrast, the incumbent has no obligation to offer wholesale
services, so this alternative interim solution is not available
there.
1.7 BT has met all of its unbundling obligations
to date, and will also meet the requirements of the EU regulation
on local loop unbundling which will be in place by 1 January 2001.
But it requires all operators to play their part to help achieve
the accelerated timetable.
1.8 There remain two potential obstacles
to UK customers deriving full benefit from LLU. One is the limitation
of the requirement to provide LLU only to BT and Kingston Communications.
We believe that all UK operators with significant local access
networks should be equally obliged to unbundled. Otherwise service
providers will not be able to serve large numbers of customers
who do not get their local loop service from BT. This also exacerbates
the other potential obstacle which is the lack of an "open
access" requirement on operators taking over loops. All operators
should give their customers freedom to use any service provider,
and should not be free to restrict them to a single "in-house"
option.
1.9 BT also continues to develop prices
which meet customer needs. We were the first European telco to
offer unmetered access. Our Surftime package has made the UK one
of the cheapest places in the world for residential customers
using the Internet. We are continuing to improve our offerings—from
1 December we will be offering unmetered evening and weekend prices
for voice telephony.
1.10 This rapid pace of developments reflects
the UK communications market—one of the most competitive
in the world. This creates a challenge for public policy in terms
of the future structure and nature of regulation, and how all
operators should share the burden of shouldering social responsibilities.
All operators urged deregulation in their submissions to the Government
about the forthcoming Communications White Paper. All the players
in a converged and open market need to share responsibility for
addressing issues such as the digital divide.
1.11 Recent commentary about the need for
service level competition has tended, worryingly, to disregard
the importance of communications infrastructure. Without investment
in world class infrastructure, UK customers will be unable to
enjoy the new and innovative products of the future. There is
also the implication that the network in place is that which was
inherited by BT at the time of privatisation, and costs should
therefore be "sunk". This is a misconception. Like any
other infrastructure, such as roads or rail, the communications
network needs constant upgrading and improvement. Since privatisation
BT has spent billions of pounds to maintain, upgrade and improve
its network. This year alone, BT's capital expenditure is expected
to reach some £4.5 billion. BT will also be investing to
build its UMTS network following its successful bid for a 3G licence.
1.12 For such investments successfully to
continue, and to ensure the UK retains its leading position, infrastructure
build must be able to attract appropriate returns. In a dynamic,
competitive market like the UK, such investment bears increasing
risk. It is fair and proper that all operators who derive the
benefits from these investments should be prepared to shoulder
their costs and responsibilities.
1.13 BT is being innovative and proactive
in approaching the challenges posed by the new communications
environment. Earlier this year, BT announced its plans to restructure
the company into a number of stand-alone business lines, including
a separation of its retail activities from its retail operations,
to bring a greater transparency into its operations. This is a
bold and unprecedented step in telecommunications. The US RBOCs
have not taken this step, nor have any other EU telcos. Achieving
this separation will be a challenge for many reasons, but it is
another demonstration that far from resisting competition, BT
is setting the pace in terms of liberalisation and structural
innovation.
1.14 The EU regulation on local loop unbundling
will be in place by 1 January 2001. BT understands its legal obligations,
and is doing its utmost to comply. We know that Oftel will be
a tough judge of our performance. We now hope that the UK government
will do all it can to ensure that UK companies get the same opportunities
in other member states as other operators are getting in the UK.
2. INTRODUCTION
2.1 This paper is about the building of
broadband Britain. It outlines the progress on Local Loop Unbundling
and places it in a European context; it gives a progress report
on the deployment of high speed "ADSL" services; and
it concludes with some comments on the Communications White Paper,
which offers the opportunity for the UK to create an integrated
regulatory system for the converging industries of the Information
Age.
3. LOCAL LOOP
UNBUNDLING
What is happening in the UK?
3.1 Local Loop Unbundling (LLU) became a
regulatory requirement in the UK this year. Until recently, Oftel's
policy statement[1]had
rejected LLU as an impediment to the development of infrastructure
based competition. This was one of a number of policies designed
to encourage local network competition, particularly from the
cable operators—another was the prohibition on BT using
its network for broadcast conveyance, which will only expire in
January 2001. Following a review by Oftel and consultation with
industry and consumers, on 27 April 2000 BT accepted Oftel's proposal
of a licence amendment (Condition 83) requiring it to provide
LLU. Oftel brought the condition into force on 8 August.
3.2 During the discussions with Oftel and
other operators BT proposed a timetable, which Oftel indicated
that it regarded as reasonable but would keep under review in
case acceleration was possible. The key milestones in the timetable
included:
— Initial co-location orders received—1
September 2000;
— Full LLU contract completed—December
2000;
— OFTEL determination of charges for
loops—December 2000;
— Initial trials of co-location and
limited manual processes—Q1 2001;
— Trial with automatic operational
support systems—from April 2001; and
— Full LLU launch—1 July 2001.
3.3 BT has met all timescales within this
previously agreed plan to date but recognises that this has now
been overtaken by the EU regulation on LLU.
3.4 Following the draft European Regulation
in July 2000, BT and OFTEL met and discussed how the timetable
should and could be advanced. It is important to recognise that
co-location is only one means of providing local loop unbundling
and co-location depends on the speed with which BT's exchange
buildings can be prepared to accommodate the equipment of other
operators. To do this it is necessary to:
— Establish which exchanges need to
be prepared. It is estimated that only a minority of BT's local
exchanges will be sought out by other operators. These will be
urban sites, close to commercial districts and business parks.
Other operators are less likely to require loops in residential
neighbourhoods and rural areas, where there are fewer profitable
customers;
— Obtain planning permission where
appropriate, undertake building works and install ancillary facilities
such as air conditioning and security devices; and
— Resolve situations where there is
more demand for co-location than the available space can accommodate.
3.5 The issues connected with prioritisation
are being addressed through an Oftel supervised technique known
as the "bow wave process". Operators list the exchanges
to which they desire access in order of priority. This enables
a list of exchanges to be readied for unbundling to be drawn up,
and operators are allocated space in the exchanges from which
they most desire to operate. Oftel has determined that the balloting
be administered by the Electoral Reform Society using a single
transferable vote system. Unfortunately industry disagreement
on the way space should be allocated where there is an excess
of demand over supply at a particular exchange has delayed surveys
of some of the most popular sites. Industry, having failed to
agree on an allocation process, then asked Oftel to create one.
3.6 BT's exchanges were not designed for
multiple occupation. There are real space constraints in some
locations.
3.7 Nevertheless BT has worked with Oftel
to meet the EU deadline. We have suggested creative ways to speed-up
the process bypassing some of the difficulties, especially space
constraints. With current arrangements, BT may be able to provide
space for co-location in 190 exchanges by 1 July 2001, and 270
by the end of July, with, possibly, a further 100 exchanges coming
on stream each month thereafter. This coverage could be further
augmented significantly by locating the equipment of other operators
in buildings close to BT exchanges rather than inside them, and
linking their equipment by cable to the exchange. This would increase
the number of customers able to take advantage of LLU by providing
access to exchanges even where there is no space for the equipment
of other operators; this would enable more operators to gain access
to the most popular exchanges. Some operators have suggested that
this is a good means of overcoming the constraint. Depending on
the geographic spread of demand from OLOs and their willingness
to locate their equipment close to BT premises, it would be possible
to "open up" as many as 600 exchanges by 1 July 2001
utilising a mixture of on-and off-site co-location.
3.8 The plan does depend on operators seeking
surveys and then placing firm orders in a timely manner (operators
were several weeks late on the 1 September 2000 deadline); progress
will result from matching individual orders to the constraints
of individual sites. Until firm orders are received, the improvement
plan cannot be considered fully resilient.
3.9 It is also necessary to ensure that
a good automated "back office" system is established
early and that manual ordering procedures are kept to a minimum.
Unbundling a loop changes complex contractual relationships between
BT, the operator taking over the line, and the end user customer.
BT is developing computerised systems to ensure that this process
runs smoothly and enables any problems to be identified, analysed
and dealt with. However, systems involving manual inputs and processes
are likely to trigger confusion and errors with adverse effects
on customer service. BT is seeking to automate these processes,
but this takes time and resource. Accelerating and expanding the
number of sites will increase the risk of delay to automated systems
which can cope with higher volumes.
3.10 In the UK, the obligation to provide
LLU currently applies only to BT and Kingston Communications.
There is a strong case for its extension to other operators with
extensive local networks. It is a pity that having led the world,
the UK is now lagging the USA where the FCC is considering a requirement
for cable operators to unbundled their networks. UK cable companies
now pass around 12 million homes, more than half of the population.
In the USA, around 70 per cent of broadband services today are
provided via cable connections. In the UK cable companies have
the capability for broadband delivery. The same arguments about
the beneficial effects of opening up networks which are applied
to BT apply equally to the cable operators.
3.11 Moreover, in the UK there is a danger
that under the current proposals LLU may simply shift any claimed
broadband bottleneck. BT's customers have complete freedom in
their choice of Service Provider—the most important being
the ability to choose their Internet Service Provider (ISP), whether
it be Freeserve, AOL or Demon or any of the hundreds of other
ISPs who operate in the UK. Operators taking over loops are under
no obligation to provide equivalent freedom and choice for their
end user customers and may seek to restrict them to a single "in
house" service provider. BT advocates a policy of "open
access"—that end user customers should be free to use
any service provider. This is the best way of ensuring a vigorous
competitive market for on-line services in the UK. Perhaps more
importantly, the UK's leading position in content provision based
on our great creative industries could be undermined through increasing
restrictions on that content being deliverable over any network
as a result of asymmetric regulation.
LOCAL LOOP
UNBUNDLING IN
THE EUROPEAN
UNION—THE
POSITION IN
OTHER MEMBER
STATES
3.12 In recent months there have been suggestions
that the UK's implementation of LLU has resulted in it falling
behind other EU Member States in telecommunications liberalisation.
We believe that the opposite is the case. LLU is only one part
of the communications equation and the UK remains the most competitive
environment for communications in the EU as benchmarked in EU
surveys. The UK's LLU programme is the most ambitious in the EU.
3.13 It is true that several member states
mandated LLU before the UK and before the EU obliged them to do
so. LLU was only mandated this year in the UK as policy previously
was to promote infrastructure based competition. LLU was originally
seen as a policy to encourage competition in "narrowband"
voice telephony. In the UK such competition was already well established.
Germany may have 150,000 unbundled local loops. Over 5 million
UK customers obtain fixed telecommunications services from operators
other than BT and over 12 million homes (some 52 per cent of the
population) have the opportunity of cable services. When it was
realised in the rest of Europe that LLU might promote competition
in broadband services, LLU was mandated across the EU, accelerating
the UK programme in the process. It is easy to exaggerate the
progress in other Member States. BT has undertaken a survey of
LLU activity across the EU.
3.14 The conclusions are as follows:
— Standard LLU is currently mandated
in nine of the 15 EU countries but is effectively operational
in only six of them.
— The only substantial deployment of
standard LLU is in Germany (150,000 lines some two years after
introduction); most of the other implementations are small scale.
— The planned UK deployment is for
0.7 million lines in the first year—over four times the
total number of loops supplied in Germany since launch.
— The interval between unbundling being
mandated and deployment varies considerably but is typically between
nine months and two years. In the UK, deployment is on track to
better these timescales.
— The interval in the UK is related
to the large-scale planned deployment and the consequent need
to develop, test and implement an automated systems solution.
3.15 A country-by-country summary of progress
in Europe is provided in the table overleaf:
LOCAL LOOP UNBUNDLING IN THE EUROPEAN UNION
(OCTOBER 2000)
| Mandated | Implemented
| Volumes (est.) | Notes
|
| Germany | Yes (9/96) | Yes (1/98)
| 150k | |
| Finland | Yes (5/97) | Yes
| Not known | LLU mostly between incumbents
|
| Netherlands | Yes (12/97) |
Yes (early 2000) | Limited scale
| Co-location issues |
| Denmark | Yes (7/98) | Yes 7/99)
| Limited scale | |
| Austria | Yes (7/99) | Yes (6/00)
| Limited scale | |
| Italy | Yes (3/00) | No (trials in progress; target 12/00)
| — | Co-location issues
|
| UK | Yes (4/00) | No (trials in progress)
| — | |
| Spain | Yes (6/00) | No
| — | |
| France | Yes (9/00) | No (trials in progress; target 01/01)
| — | |
| Ireland | No (draft law) |
No | — |
|
| Sweden | No | Yes (3/00)
| Very limited scale | Co-location problems
|
| Belgium | Yes (10/00) | No
| — | |
| Portugal | No | No
| — | Consultation in progress
|
| Greece | No | No
| — | |
| Luxembourg | No | No
| — | |
LOCAL LOOP
UNBUNDLING IN
THE EUROPEAN
UNION
3.16 The text of the EU Regulation on local loop unbundling
has now been agreed by the European Parliament and Council of
Ministers. Formal adoption by the Council of Ministers is expected
during November with no further changes. The Regulation will take
effect from 1 January 2001.
3.17 The Regulation will require those declared to have
"significant market power"—understood to be likely
to be BT and Kingston Communications in the UK—to offer:
— Sub-loop unbundling (connection at points between
the customer's premises and the local exchange), and
— Line-sharing (enabling another operator to provide
broadband services on a line while the incumbent continues to
provide narrowband telephony over the same line).
3.18 The position on LLU in the EU has been summarised
above. No Member State currently requires sub loop unbundling.
No operator in any Member State offers sub loop unbundling. OFTEL
is currently holding a consultation on line sharing. No Member
State currently requires line sharing, nor is it available anywhere
in the EU.
4. BT'S HIGH
SPEED SERVICES
4.1 High speed access to the Internet is a critical building
block for eBritain. It is crucial for the development of a dynamic,
competitive market for broadband services. BT is committed to
play its part in making it available. The principal programme
is our deployment of ADSL services which enable service providers,
including BTOpenworld, to deliver broadband services to their
end user customers. In 1999 we announced our intention to invest
£5 billion over five years to support network modifications
to support the ADSL rollout.
The forward march of ADSL
4.2 By the end of March 2000 we had spent £250 million
preparing the first 400 exchanges in the ADSL programme. This
covered installing apparatus, customer equipment, routing devices
in the network and high-speed transmission links from exchanges
to the premises of on-line service providers. Costs such as installation
at customers' premises, provision of billing and other support
activities associated with the service are on top of the £250
million. This is one of the most aggressive ADSL enabling programmes
in the world. The following table shows the progress of our exchange
and network enablement and our plans for next year:
ADSL DEPLOYMENT BY BT
| March 2000 | June 2000
| September 2000 | March 2001
| End 2001 |
| Exchanges ADSL equipped | 415
| 515 | 619 | 839
| |
| UK households covered | 26% |
30% | 40% | 50% |
70% |
This means that by the end of March 2001 high speed Internet
access by means of ADSL will be in exchange areas which cover:
— 11.5 million households (50 per cent);
— 1.4 million businesses (50 per cent);
— 45 per cent of primary/secondary schools;
— 57 per cent of nursery schools;
— 58 per cent of colleges;
— 46 per cent of public libraries; and
— 56 per cent of existing Internet users.
4.3 It is not technically or economically feasible to
rollout ADSL to 100 per cent of the UK as ADSL can only be used
within three to four kilometres of the exchange. However, ADSL
is not the only broadband technology. Alternative broadband delivery
platforms now under trial or coming on stream in the reasonably
near future include cable, broadband wireless technologies, third
generation mobile and satellite.
THE ADSL SERVICES
4.4 BT's current ADSL portfolio includes wholesale products
designed to allow any service provider to offer competitive retail
broadband services to end user customers in the UK. BT's service
provider arm, BTOpenworld buys these wholesale services on the
same basis as any other service provider. Our ADSL products are:
— BT IPStream (business) launched June 2000.
— BT VideoStream launched June 2000.
— BT IPStream (consumer) launched August 2000.
— BT DataStream (business) launched September 2000.
— Trial announced for BT DataStream (consumer)—Q1
2001.
— Trial announced for SDSL point to point—March
2001.
Customers
4.5 BT currently has more than 100 (wholesale) customers
for its ADSL services including both service providers and other
operators as well as BT Openworld. They all compete on equal terms
and currently deliver services to over 14,000 end users. BT has
just announced plans for ramping up end user installations on
behalf of all the service providers.
The next steps
4.6 BT continues to play a leading part in development
of new technologies—we have already announced our intention
to trial a number of enhancements to our existing ADSL products,
in line with customer requirements. We have announced our intentions
to trial Symmetric Digital Subscriber Line (SDSL) based services
next year. These are of particular use for small businesses and
people working from home. We are also exploring other Broadband
technologies such as Very high speed Digital Subscriber Line (VDSL)
which provides much higher bandwidth (up to 14M) to the home.
5. THE PRICE
OF INTERNET
ACCESS
5.1 BT was the first large-scale operator in the world
and the first former EU incumbent to move from metered to unmetered
tariffs for internet access, following huge investment in the
capacity of the network. It is not simply a matter of changing
the bill, which is why other companies have yet to follow our
lead. What is more, the UK offers the cheapest interconnection
prices to competitors of any country in the world except Hong
Kong. The OECD benchmarking study, published in September, showed
that the UK continued to be the cheapest in Europe for off-peak
internet access, while peak rate prices have also moved below
average levels.
5.2 Recent surveys have also shown that, in percentage
terms, more UK schools are on-line than in the USA, and more UK
business use e-commerce than their US counterparts. The UK's good
record deserves praise not criticism.
6. LOOKING TO
THE FUTURE—DEREGULATION
AND THE
COMMUNICATIONS WHITE
PAPER
6.1 The UK market has now evolved to the stage when the
focus of the regulatory system needs to change from active promotion
of competition to maintenance of competition. In formal terms
this means moving from a regulatory regime based on "ex ante"
rules—prescribing in detail what operators can or cannot
do—to one based on general competition law, as brought up
to date by the 1998 Competition Act.
6.2 This is not a view propounded solely by BT. All telecommunications
operators submitting views to the Government about the forthcoming
Communications White Paper argued for a move away from an ex ante
prescriptive regime to one relying more on competition law. Although
many of the requirements of the regulatory system will still have
to comply with EU telecommunications Directives, there remains
considerable scope for the changes the industry clearly seeks.
6.3 Oftel supported this deregulatory principle in its
2000 Strategy Statement, which set out procedures to be followed
when considering the deregulation of a market. BT supports Oftel
in its consideration of deregulation but, if this programme is
to achieve results, it is important to give it a high priority
and make deregulation a specific objective. BT was disappointed
when Oftel's Leased Lines consultation envisaged extending price
controls to products previously not regulated, and proposed controls
on local access circuits which the implementation of LLU would
render unnecessary.
6.4 For these reasons, BT has argued—in its proposals
for the Communications White Paper—that objectives for deregulation
should be embedded in the regulatory system, and that regulators
should be encouraged to use devices to limit regulation, such
as sunset clauses, the exercise of "forbearance" and
the promotion of self-and co-regulation. The recent pamphlet by
Keith Boyfield[2]drew attention
to the steady increase in the cost and size of sectoral regulators
in the UK. We believe this provides independent support for BT's
case for deregulatory incentives to be included in whatever new
regulatory structure emerges from the Communications White Paper.
7. CONCLUSION
7.1 BT emphatically rejects recent comments that the
UK has, in any significant sense, fallen behind other EU Member
States in communications. We continue to enjoy the most competitive
communications market in the EU. Other Member States mandated
LLU in an attempt to catch up with the UK, which starts from a
position where more customers obtain access from sources other
than the former incumbent than in any other Member State. BT's
LLU implementation plan is ambitious—but based on sound
engineering practice and the creation of a robust back office
system to support mass deployment. BT is also promoting competition
in broadband services through its wholesale ADSL products.
7.2 The UK's communications industry is driven by competition.
That is why it is meeting the needs of customers. The task now
is to ensure that the full benefits of LLU are realised. There
are two important steps—all operators with significant local
networks should be required to provide LLU, and the UK should
adopt an "open access" policy so that customers can
use any service provider they wish, irrespective of their access
provider, whether BT, cable, an unbundled local loop operator
or any other.
7.3 The Communications White Paper represents a crucial
opportunity for the UK to create a regulatory system to support
eBritain.
November 2000
1
Indirect Access, Equal Access and Direct Connection to the Access
Network, 1996. Back
2
The Politics of Regulation, European Policy Forum, 2000. Back
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