Select Committee on Trade and Industry Appendices to the Minutes of Evidence


Memorandum submitted by VIATEL


  Viatel is a rapidly growing provider of communications services to individuals, corporations and other carriers in Europe and America. We have approximately 150,000 consumer and SME[5] customers in the UK and more than 400 large "enterprise" customers.

  Viatel's voice services include consumer and business local and long distance calling, dedicated access and point-to-point connections, calling card services. Internet access and switched-minute wholesale services for other carriers. Viatel also provides bandwidth to Internet service providers, application service providers, and other telecommunications companies.

  Viatel's advanced network technology and strategic partnerships enable economical high-speed dedicated data circuit provision, advanced data services (such as IP and frame relay business networking services), virtual private network (VPN) services and support for all required aspects of e-commerce infrastructure. These include bandwidth, web hosting, IP transport and IT outsourcing for companies seeking to rapidly deploy web services and applications.

  When completed, our pan-European network will link 59 major cities in the United Kingdom, The Netherlands, Belgium, France, Germany and Switzerland. Viatel will also own and operate metropolitan networks in London, Amsterdam, Paris, Berlin, Frankfurt and Dusseldorf. Viatel also owns significant trans-Atlantic capacity, including the fibre pair it now owns and operates on the Yellow Submarine cable. Attached is a map of Viatel's UK and pan-European network.


  The Government's goal is for the UK to become a competitive and dynamic knowledge-based economy, capable of sustainable economic growth with more and better jobs and greater social cohesion. In order to seize the growth potential of the new digital economy, the UK's businesses and citizens need access to inexpensive, broadband communications infrastructure.

  Companies like Viatel have been deploying large-scale, broadband fibre-optic networks to facilitate the growth of the "information superhighway". However, those highways are useless unless we can provide "on and off ramps" for the customers. It has been impossible for operators to replicate the ubiquity of BT's access network, and BT itself has been slow to deploy x DSL technology[6] in order to increase the bandwidth capability of its copper local loop.

  It is therefore recognised, both by the UK Government and by the European Commission[7], that requiring BT to provide alternative operators with unbundled access to its local loops is the ideal way to enable the provision of broadband connectivity to all types of consumer.



Whilst we applaud OFTEL's comparatively early initiatives to introduce local loop unbundling, Viatel is concerned that OFTEL has not taken a firm enough hand with BT over its implementation. OFTEL issued a statement in November 1999[8] in which it announced its intention to require BT to make its local loops available to other operators in order to introduce competition in the provision of higher bandwidth services. However, in that statement OFTEL decided that this service would not have to be made available until July 2001.

  OFTEL's view was that 18 months would be needed in order for guidelines on operational processes (such as co-location and order handling) to be completed, recommendations for a spectral management plan to be adopted and published, and for BT to develop its systems to enable it to process orders. We believe that these time frames were overly cautious, especially in light of the ambitious target set by the European Commission in its Regulation—European incumbent operators to offer unbundled access by 31 December 2000.

  We note that OFTEL adopted a similarly cautions approach to the timing of the introduction of Carrier Pre-Selection (CPS) in the UK (a subject which has been discussed at previous Committee meetings with the Director General). In February 1999 it announced in a statement[9] that it had sought a deferment of the European Commission's 1 January 2000 deadline for introducing CPS on BT's network. OFTEL's justification was that BT's switches had no latent CPS functionality and so CPS could not practically be in place by that date. OFTEL's preferred timescale was for CPS to be available for national and international calls late in 2000, and the "all calls" option to be available in late 2001. [10]

We believe that these examples suggest that OFTEL has been overly willing to accept BT's arguments regarding the technical difficulties in introducing new services. We hope that going forward, OFTEL will start to take a firmer approach to BT in order to encourage the sustainable growth of competitive services.

Co-Regulatory Approach

  OFTEL decided back in 1999 that guidelines on operational processes for local loop unbundling, such as co-location and order handling, would be examined by a sub-group of the Operator Policy Forum. [11]This sub-group (of which we were and still are a member) should have been used as an effective way of reaching broad agreement on processes and identifying genuine areas of dispute. However, we believe that OFTEL did not intervene early enough in areas which were clearly disputed and were likely to remain so, and that such a co-regulatory approach was perhaps inappropriate in the circumstances.

  A separate sub-group, which was charged with negotiating the contract terms with BT, also ran into difficulties due to BT's intransigence. When the members of this sub-group discussed with OFTEL their inability to reach agreement with BT, OFTEL demonstrated an unwillingness to intervene (by encouraging the sub-group to continue their attempts to negotiate with BT and by alluding to the time that a determination would take to make) which compounded the delays from which the process is now suffering.

  It is accepted that sector specific ex-ante regulation is only necessary in the absence of full and effective competition. However, in contested areas, where operators with unequal bargaining power are on opposite sides of the negotiating table, a mutually acceptable commercial outcome is unlikely to be reached without ex-ante rules having been laid down by the regulator. Where delay and obfuscation are of benefit to those with market power, co-regulatory approaches are likely to be slower than formal regulation and therefore less effective in tacking that market power.

  We hope that, in future, OFTEL does not attempt to use the existence of operator groups liaising with BT as a reason not to regulate.

Regulatory intervention still required

  It is Viatel's experience from other countries that, absent detailed proscriptive regulation from the regulatory authorities, incumbent operators will seek to restrict and delay the provision of loops to competitors. Incumbents will only ever do the minimum required in this area, so a considerable level of detail is required in the regulations.

  Areas where we hope that OFTEL will provide such regulatory intervention relate to:

    —  the nature and availability of co-location space;

    —  the equipment that can be housed in co-location space;

    —  lead times for provisioning of both the space and the circuits; and

    —  the information which BT is required to make available to operators.

  We are also extremely concerned about the fact that commitments have to be made by operators in the absence of pricing. We believe that there are a number of areas, concerning charges proposed to be levied by BT in relation to co-location space, [12]where firm intervention by OFTEL and an independence of thought from BT's line of argument is required.

7 November 2000

5   Small and medium-sized enterprises. Back

6   The installation of Digital Subscriber Line technology at both ends of a copper telephone line enables broadband connectivity (at speeds of, for example, 2 Mbit/s) over the narrow-band copper line. Back

7   See European Commission's Proposal for a Regulation of the European Parliament and of the Council on Unbundled Access to the Local Loop. Back

8   "Access to Bandwidth: Delivering Competition for the Information Age." Back

9   "Implementation of Carrier Pre-Selection in the UK." Back

10   It transpired that the European Commission would only grant OFTEL a deferment until April 2000, which forced OFTEL to require the introduction of "interim" CPS (using auto-diallers) from April 2000 until the introduction of "full" CPS. This was the subject of a High Court appeal by BT, the result of which was legal uncertainty as to pricing and the consequent inability on the part of the alternative operators to offer the interim CPS service. In reality, there has been no interim CPS since April 2000 as required by the European Commission. Back

11   A group which meets at OFTEL's offices where operators, BT and OFTEL exchange information. Back

12   For example, charges for survey fees and refurbishments. Back

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