Memorandum submitted by Oftel
COMMUNICATIONS INQUIRY: "PROGRESS
TOWARDS EFFECTIVE BROADBAND, AND HIGHER BANDWIDTH NETWORKS"
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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