Select Committee on Culture, Media and Sport Minutes of Evidence

Memorandum submitted by Oftel


  1.  I welcome the opportunity your inquiry gives us to set out our views on the development of broadband services in the UK.

  2.  Supporting the development of competitive broadband markets has been a key and important area of work for us over the past few years. I enclose with this letter for the Committee's attention two documents we have recently published on broadband—on broadband strategy and recent market and regulatory developments, which I hope will be helpful.

  3.  My role as Director General of Oftel is to deliver choice, quality and value for money for UK telecoms consumers. In the broadband markets our primary focus has been on promoting competition at all levels from infrastructure to service provision. I firmly believe that this is the best way to deliver consumers' needs over the long run. Competition enables industry to respond to their customers' needs, giving consumers and businesses a greater choice of how they receive broadband services, what they receive and the price they pay for them.

  4.  We have been working to allow competition to flourish through the creation of the right regulatory framework, taking appropriate action where necessary to meet competition concerns, whilst refraining from unnecessary regulation. In brief, the key principles that Oftel has been following are:

    —  joined up and coherent approach, looking at broadband technologies and services as a whole rather than focusing overly on particular delivery routes. Not deterministic, but responsive to market needs;

    —  appropriate regulation based on accurate market definition and assessment of market power. Regulation justified on basis of and proportionate to objective of achieving sustainable and effective competition. In short, where the market has failed, Oftel seeks to redress through regulation.

  5.  Through pursuing this strategy we believe we are providing the framework for one of the most competitive marketplaces in Europe for broadband, with competition at the infrastructure level between cable providers and DSL and numerous service providers competing with BT to provide retail DSL services to customers. Operators have the choice of local loop unbundling, shared access, wholesale services and now DSL interconnection services with which to deliver broadband over BT's network, while we have been careful to ensure that incentives to invest in alternative infrastructures are not undermined.

  6.  And competition is beginning to deliver broadband access at lower prices as can be seen from the latest data we have recorded for our regular Internet and Broadband brief:

    —  Broadband is available to around 60 per cent households. Many of those households have a choice of access through cable networks or BT's DSL network;

    —  Oftel benchmarking shows that the price of cable modems is amongst the lowest in the world. Prices for DSL residential services remain high—however, prices have already fallen in the last year and competition from cable offerings and the development of self-install products should contribute to bringing prices down further;

    —  take-up of broadband in the UK is still low, but is growing substantially with an increase of over 500 per cent of users over the last year;

    —  unbundled loops and shared access are available throughout the country, and orders are being placed and fulfilled—as at January 2002, 61 exchanges have been prepared for LLU. However, demand remains low, due in no small part to the adverse economic climate which has affected operators' investment plans;

    —  take-up of digital TV, which can provide access to a range of interactive services to those who do not have a PC, is the highest in Europe.

  7.  More detail on both Oftel's strategy and the state of the market are in the attached documents. But in summary, my message is that the regulatory framework is in place to allow competition to develop, new services are coming on the market and take-up is increasing rapidly.

  8.  But it is early days yet for broadband internet access and other high-speed data services, both in the small and medium enterprise sector and in the residential sector. Penetration of such services in those sectors is still low. Consumer demand will be particularly key, particularly in the residential market. Oftel's research suggests that for most households a broadband connection is unlikely to be a 'must have' service within the next year or two, at least at prices which reflect the cost of providing the service. Moreover, the availability of unmetered internet access at attractive prices (the UK is unique in this respect in Europe) already deals with one of the significant problems of traditional dial-up internet access, and may have made narrowband disproportionately popular at the moment.

  9.  Having said that, our consumer research and comparisons with the take-up of other technologies such as Internet and mobile phones, suggests that there is demand and that broadband take-up will continue to grow—but it is likely to be gradual, reflecting the perceived needs of consumers, rather than a mass migration.

  10.  I would like to touch briefly on experience in other countries. We clearly are in no position to be complacent. But there are good grounds for believing that strategy of stimulating competition in the UK will deliver results and that the apparent lead which some countries have may be eroded. For example:

    —  DSL was introduced in the UK later than in some other European countries (possibly due in part to the availability of reasonable flat-rate narrowband access), but the rate of take-up is similar to that in other countries at a similar stage following launch;

    —  In the USA, roll-out has been stimulated by competition at the infrastructure level between cable networks and DSL. This is being reflected now in the UK (unlike in most other European countries) with cable companies speedily rolling out a range of cable modem services in competition with BT and other service providers' DSL offerings. Local loop unbundling also provided an initial spur to DSL roll-out in the USA—however the impact was not as significant as anticipated and new entrants using the LLU strategy have now all but disappeared from the scene, as a result of difficult market conditions. This again has been mirrored in the UK experience;

    —  Unlike in other European countries and the USA, BT faces significant competition in the provision of DSL to customers—retail services are being offered by over 100 service providers in the UK;

    —  In Europe, the speediest roll-out of DSL services has, unsurprisingly, occurred where incumbents' prices are lowest. There have been suggestions that some of these prices are unrealistically low and have been set at those levels mainly to corner the market. If so, they are unlikely to be sustained. And, as noted above, UK retail prices should fall;

    —  The broadband market has not taken off anywhere in the world yet; for example, with the exception of South Korea levels of uptake range up to 5 per cent of the population in any given country. This makes meaningful comparisons difficult at this stage.

  11.  In the view of Oftel, there is no single solution to `delivering' broadband. We are working to ensure that competition can develop in broadband markets, and the Government has announced initiatives to stimulate demand, but ultimately the development of broadband will depend on industry delivering services that consumers want at prices they are willing to pay. We are confident that in time, this will be achieved.

  12.  I hope that the Committee finds this summary and the attached documents helpful as an overview of the situation in the UK and Oftel's role in promoting competition in broadband markets. I would be happy to submit further information on any particular aspect of Oftel's work on broadband, should the committee find it useful.

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