Memorandum submitted by AOL UK
AOL UK eagerly awaits the publication of the
draft bill on Communications expected this spring. We welcome
the vision outlined in the Communications White Paper of a combined
regulator addressing the regulatory requirements of and the application
of competition law to an increasingly converging communications
AOL UK endorses the consumer-centric approach
to policy and regulation outlined in the Communications White
Paper. In our view that approach should lead to regulation only
where it is needed to ensure that consumers have access to services
and content of their choosing.
AOL UK welcomes the recognition in the White
Paper that different channels require differing approaches to
content regulation. In particular, as a global medium where both
content ownership and content distribution cross national boundaries
and where content is "pulled" by consumers rather than
"pushed", we support the view that the internet suits
a lighter regulatory approach than other media. We support the
Government's view that partnership provides the best approach
for the regulation of internet services and welcome the Government's
support for self-regulatory schemes such as the Internet Watch
AOL UK believes that to achieve the proposals
in the Communications White Paper, including greater competition
in the telecommunications sector and support for the use of telecommunications
infrastructure for future services such as Pay TV and other content
services, an appropriate regulatory framework for infrastructure
services which addresses market demand is essential.
In particular, this would require the new regulator
to be statutorily empowered and appropriately resourced to undertake
a rigorous economic regulatory approach wherever the activities
of monopolistic or oligopolistic market forces were restricting
access to communications networks on open, transparent and competitive
terms. This would at the very least maintain, if not extend, the
existing principle that regulation is required where competition
does not effectively regulate the market.
The initial decision of the European Commission
to concentrate its broadband efforts solely on Local Loop Unbundling
(LLU) has impacted on the ability of regulators to respond more
flexibly to market demand, which has progressively avoided basing
downstream services on local loop unbundling.
Nonetheless, despite this regulatory focus,
the unbundling exercise has amply illustrated the difficulties
regulators face when they do not have an effective set of powers
and sanctions. Clearly the powers, sanctions and human resources
of OFCOM must be sufficient for it to deliver on its responsibilities.
In certain bottlenecks such as LLU and wholesale ADSL services,
without robust regulation it should be expected that effective
competition will not arise in at least the next five to ten years.
OFCOM will enjoy a more technologically neutral
set of regulatory powers when the new EU legislation is transposed,
but must understand the lessons of previous economic regulators
and develop processes that are robust and, where necessary, rapid
in order to tackle any obstacles to developing and sustaining
a dynamic market. The emphasis in the EU legislation on collective
dominance and leveraging of dominant positions must be faithfully
reflected in OFCOM's approach to markets.
AOL UK believes that broadband technologies
allowing high-speed internet and interactive services are and
will continue to be an essential component of convergence. The
communications and internet revolutions in the UK are dependent
upon a roll-out of competitive access to broadband infrastructure.
At AOL UK we believe that ADSL will offer a wider coverage for
broadband connections than any other method given the current
low penetration and significant funding issues affecting alternative
carriers such as cable providers.
If the UK is to rise to the Government's target
(set out in UK online: the broadband future), "for
the UK to have the most extensive and competitive broadband market
in the G7 by 2005", success will be reliant upon effective
regulation by the existing regulator, OFTEL. Thereafter, ensuring
the provision of sustainable services will continue to be a major
challenge for OFCOM.
Provision of broadband access specifically through
ADSL is a potent example of the importance of infrastructure regulation
in the communications industry, demonstrating how an unsatisfactorily
slow regulatory process is depriving UK business, citizens and
consumers of the kind of "next generation" online services
benefiting millions of their peers in other nations.
Tardy regulatory intervention creates the very
real danger that infrastructure owners are able either to obtain
an unassailable first-mover advantage while the regulatory process
struggles to find viable solutions for competitors or that the
whole market is materially delayed while infrastructure owners
hold back innovation because they are unable themselves to identify
their own way forward. In either case, consumers are denied the
choice and quality of services they deserve.
AOL UK's answer is an unequivocal "yes".
From our own research it is clear that unmetered narrowband internet
access ("flat-rate" access) has significantly raised
UK consumers' awareness of the benefits of broadband. Flat-rate
access on narrowband offers consumers the experience of going
online without having to "watch the clock" of minute-by-minute
metered telephone bills; since the introduction of flat-rate access,
usage of the AOL service in the UK has more than doubled.
Broadband, offering the key benefit of being
"always on", represents a logical step-up for flat-rate
internet users who, according to recent OFTEL research already
account for more than 40 per cent of all UK households online.
The AOL UK research found that 85 per cent of
its members on the flat-rate price plan wished to move up to broadband
(the comparable figure for those on legacy metered price plans
was 69 per cent). Of those who indicated a willingness to move
from flat-rate to broadband, 70 per cent said they were prepared
to pay a premium for this service.
There is therefore no doubt whatsoever in our
minds that there exists significant mass-market consumer demand
for broadband in the UK. But that interest will not convert into
real demand at the current DSL price points in the UK (typically
more than £40/month retail, compared to £40/month retail
on the Continent).
FOR ADSL IN
THE UK SO
Currently, the critical problem for internet
services providers (ISPs) in offering broadband services is not
lack of mass-market consumer demand but the high cost of BT's
wholesale ADSL product on which those services are based. The
recently-announced price of BT's new "self-install"
ADSL wholesale product (currently under trial) is closer to a
level likely to enable ISPs to market consumer services, but still
remains above the point where large-scale mass-market take-up
is likely. Unfortunately, questions about the scaleability and
robustness of BT's provisioning systems - which dogged the company
throughout 2001 - have also still not been fully resolved.
These supply-side factors have prevented AOL
UK from nationally mass-marketing its broadband service to the
mass market up to this point. However, as demonstrated by our
research, substantial demand for broadband exists within the AOL
UK membership base. Therefore as soon as the supply-side conditions
are met AOL UK will begin fully nationally mass-marketing broadband
in the UK.
AOL UK fully understands the Government's commitment
to the development of broadband as a universal service accessible
to all across the UK. However, we would point out that the debate
concerning the feasibility and desirability of broadband as a
universal service is premature given the continuing supply-side
problems inhibiting the launch of mass-market ADSL services in
In AOL UK's view it is crucial to ensure key
requirements are met in terms of infrastructure regulation in
order for OFCOM to succeed in its role:
The regulatory process put in place must enable
OFCOM to act in a sufficiently timely manner
OFCOM should contain staff sufficiently
skilled and empowered to deal with the particular issues raised
by the various bottlenecks and impediments to competition and
in particular access to telecoms infrastructure
OFCOM must be independent of Government
OFCOM must refrain from intervention
where effective competition or self-regulation renders regulation
The complexities inherent in infrastructure
regulation, as demonstrated by the difficulties with broadband
roll-out, require particular expertise and experience and therefore
in the view of AOL UK it is important to ensure that OFCOM attributes
the highest priority and devotes sufficient and suitable resources
to infrastructure matters.
11 January 2002
7 Consumers' use of Internet Oftel residential survey
Q6 August 2001. Back