Memorandum submitted by OFTEL
1. This memorandum deals with progress in
the UK towards enabling the competitors of BT to take control
of individual BT exchange lines for the purpose of offering their
own services to the subscribers for those lines ("local loop
unbundling"). It supplements the oral evidence given by the
Director General and his colleagues during their appearance before
the Committee on 14 November. As the memorandum illustrates, the
approach of OFTEL since 1998 has been strongly pro-active, and
is bringing about unbundling on as fast a timescale as is possible
in the context of the UK.
2. When the current Director General took
up office in April 1998, OFTEL policy was that local loop unbundling
would be, at best, a distraction from the task of achieving effective
competition for subscribers between different communications networks.
At the time, and for some time afterwards, few European regulators
were pursuing unbundling as a live issue. By way of exception,
Germany had already required its incumbent to unbundle. Its motivation
was to increase competition in traditional telephony. But in the
UK, unbundling for such a purpose made little economic sense.
Suppliers of telephony were already able to compete with BT using
"indirect access" services and availability of unbundling
would have had negligible effect on competition in telephony.
3. It became apparent that unbundling could
have an important part to play in ensuring effective competition
in supply of higher bandwidth services such as high-speed data
transfer, fast internet access and video services. However, imposition
of an obligation to unbundle could not be taken lightly. It represents
a greater intrusion into the business of the incumbent than had
been previously undertaken. It could also, unless implemented
appropriately, affect the development of competing local access
networks such as cable. Moreover, it is extremely operationally
and technically complex and the lessons from other countries were
few and not wholly relevant. Accordingly, full consultation was
appropriate. By July 1999, OFTEL had concluded that unbundling
was necessary in the consumer's interest and BT should be obliged
to provide it. It presented that proposal for consultation and,
in the meantime, established industry groups to take forward technical
and operational issues. A policy Statement was issued in November
1999 confirming that policy, and setting out a provisional timescale.
4. Even so, there was no clear statutory
obligation (either from national or European law) on BT to offer
unbundling in accordance with OFTEL policy. OFTEL therefore pursued
the established route, set out in the Telecommunications Act,
of seeking agreement from BT to an amendment to its Telecommunications
Act licence, formalising such obligations. If BT had refused its
consent, OFTEL would have referred the matter to the Competition
Commission for a ruling that the obligations were in the public
interest. That process would have taken around a year, if not
longer. However, BT agreed in April 2000 and the appropriate obligations
were inserted as Condition 83 of the BT licence, following the
necessary period of statutory consultation.
5. In the meantime, the European Commission
had made a Recommendation that incumbents should be required to
offer unbundling. This was of no practical value in the UK or
in most other EU states as Recommendations are not legally binding
and so it did not create a legal basis for regulatory intervention.
Accordingly, European regulators collectively made representations
to the European Commission that it should bring forward on the
fastest possible timescale a legal instrument creating a harmonised
basis for compulsory unbundling throughout the EU. OFTEL was prominent
in these discussions.
6. In due course, the European Commission
represented a draft Regulation for approval by Council of Ministers
and European Parliament. This was adopted on 5 December and will
come into force on 31 December. (The immediate obligation imposed
by the Regulation is to offer unbundling on terms consistent with
the Regulation. This allows for services to be delivered in a
timely manner after an order is placed. It is not the case, as
has sometimes been reported in the press, that the Regulation
requires unbundled loops to be available on 1 January 2001.)
7. The obligations for fully unbundled loops
imposed by the Regulation are not materially different from the
obligations under Condition 83. This is of some significance as
it illustrates that the obligations negotiated by OFTEL in April
2000 are in no way soft on BT. (The Regulation deals additionally
with two further topics"line-sharing" and sub-loop
unbundling. OFTEL has consulted on the former and will issue a
policy statement very shortly. The latter is barely relevant to
the UK network at present but OFTEL expects to consult early in
the New Year.)
8. Notwithstanding the near-coincidence
of obligations relating to full unbundling, the Regulation nevertheless
will assist OFTEL in ensuring that BT complies fully with those
obligations in a timely manner. Enforcement powers available under
the Telecommunications Act are rather cumbersome and laborious.
In addition, under the Regulation, aggrieved parties have a right
of action against BT in the courts for non-compliance with its
9. After April, OFTEL turned its attention
more and more from the policy to the details of implementation,
as illustrated by the constant stream of OFTEL publications from
April onwards (summarised at Annex A).
A number of the technical and operational details were resolved
satisfactorily in the industry groups which OFTEL had set up.
However, by summer 2000, several issues had emerged where it was
clear that BT and the industry would not reach agreement. Moreover,
there were other issues where the competitors had different and
apparently irreconcilable viewpoints. These related in particular
to the management of a "bow-wave" of demand at the beginning
of the process. All agreed that, where resources could not reasonably
be made available in sufficient magnitude to deal immediately
with all the initial demand, all operators should benefit from
a fair share of the resources available. However, that was the
extent of the agreement. It was an issue of great significance
since the "bow-wave" is expected to persist well into
2001, despite plans by BT to deploy well over 3,000 staff in planning
and building co-location facilities and providing unbundled loops
at sites where co-location was available.
10. Accordingly, in September, with the
agreement of the interested parties, OFTEL took over chairmanship
of the main Focus Group, bringing together all interested parties.
At that time, various complaints alleging non-compliance by BT
with its obligations were submitted. A considerable amount of
progress on the most difficult issues has subsequently been made,
as illustrated in Annex A. For example, OFTEL has published a
draft determination on loop rental prices; it has published a
draft determination of the basis of the contract offered by BT
for supply of unbundled loops; and it has determined the rules
for allocation of co-location space in exchanges where there is
greater demand than can be fitted into the space available. Senior
OFTEL staff have inspected a number of BT exchange sites and guidelines
on the criteria to be used by the Director General in assessing
how much space is available for co-location (in the event of a
dispute) will be issued shortly.
11. OFTEL expects that it will need to continue
in this "hands-on" role for several months yet and subsequently
monitor market developments carefully.
12. Annex B summarises the original timetable
proposed by OFTEL and the improvements made subsequently. OFTEL
is optimistic about future progress. The technical details have
been mostly worked out and the operational processes largely in
place. BT is now devoting increasing amounts of resource to surveying
and planning work for provision of co-location at its exchanges
and has developed plans and earmarked resources for handover of
loops. Improvements in the provisional timetable have been secured.
The European Regulation provides better compliance incentives
than the Telecommunications Act.
13. OFTEL believes that BT is in a position
to comply fully with its obligations under national and European
law. OFTEL will of course continue to monitor progress closely.
At present, OFTEL continues to press for further improvements
to timescales. It expects BT to introduce efficiency improvements
into its planning and building processes and is investigating
whether BT is devoting sufficient resources to the programme.
14. Nevertheless, if BT adheres to its public
commitment to preparation of co-location facilities, expressed
on (10 November), and to its other obligations the UK will by
mid-2001 be ahead of almost all of Europe in unbundling. Germany,
with a three-year head start (arising from different policy considerations)
will be some way ahead. Nevertheless, OFTEL expects that the UK
will be catching up fast, while maintaining its lead over other
8 December 2000
LOCAL LOOP UNBUNDLING: TIMETABLE
Timetable set out in November 1999 Statement
|January 2001||BT takes orders for co-location.
|June 2001||BT delivers co-location.
|June 2001||Completion of Operational Support Systems (OSS).
|July 2001||Widespread automated provision of unbundled loops.
Timetable as revised in April 2000
|1 September 2001||BT takes orders for co-location.
|April 2001||Complete Operational Support Systems (OSS).
|April-June 2001||Trials using OSS.
|June 2001||Delivery of co-location.
|July 2001||Widespread automated provision of unbundled loops.
Latest expectations of timetable on the basis of BT
commitments (not yet accepted by OFTEL as sufficient to meet BT's
|12 September 2000||BT takes orders for co-location.
|December 2000||First (trial) co-location facilities handed over to operators.
|Early 2001||Additional co-location facilities handed over. BT committed, subject to suitable orders, to make available co-location at 600 exchanges (physical co-location at 190) by 1 July. Loops made available within five days of order at all "handed-over" exchanges using manual processes.
|Mid-2001||Completion of Operational Support Systems (OSS) providing automated support for loop ordering, fault reporting etc, allowing widespread automated provision of unbundled loops.
|From mid-2001||Physical co-location at additional exchanges, subject to suitable orders, at the rate of around 100 per month.
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