APPENDIX 37
Memorandum submitted by the Fixed Network
Operators Group
1. This short-form response to the Committee
is submitted on behalf of the Fixed Network Operators' Group,
comprising Cable & Wireless plc, Colt Telecommunications plc,
Energis plc, and WorldCom Inc.
2. All four operators are pan-European or
global communications companies, with European operations headquartered
in the UK. Their combined turnover in 2002 is in the multi-billions
of pounds.
3. The operators' primary business activities
are in voice and data communication, web hosting and Internet
Service Provision. Their primary customers are businesses, for
whom the companies provide the path for their customers' contribution
to the Information Society and electronic commerce.
OFCOM AND BROADBAND
DEPLOYMENT
4. We welcome the Culture and Media Select
Committee's interest in the forthcoming Communications Bill, and
particularly in OFCOM's role in broadband Internet deployment
in the UK (point iv in the current Inquiry).
5. We note that the OFCOM Bill is a paving
Bill with little detail as to budget, funding or organisation
of OFCOM beyond the establishment of Board and Chief Executive.
While this is inevitable in a paving Bill, we consider it regrettable
that so few of the details of the new OFCOM structure, powers
and funding have yet been published by government (discounting
the Towers Perrin Report commissioned by the G5 regulators' group).
6. As providers of the carriage through
which Information Society content flows, we consider it of paramount
importance that the conditions for providing the government's
goal of "the most extensive and competitive broadband market
in the world" by 2005 are met. In our view this goal requires
radical regulatory surgery.
7. Bottlenecks in the carriage market in
the UK are restricting growth of broadband deployment, e-commerce
and content production. It is currently the responsibility of
Oftel to "unblock" these bottlenecks.
CURRENT CARRIAGE
REGULATOR: OFTEL
8. Oftel is the UK regulator charged with
implementing the European Commission's Communications Directives,
including the new Directives which will be implemented in the
UK in mid-late 2003, shortly before the anticipated launch of
OFCOM. It will be the key task of "shadow OFCOM" to
implement the Directives effectively and efficiently.
9. Without ex ante regulation of dominant
operators, there is no opportunity for effective regulation in
the market. OFCOM will be a toothless regulator with no emerging
content industry, and no real competition in carriage.
10. We understand these issues are not the
central priority for the Culture and Media Select Committee. However,
we insist that they are a pre-requisite for the content and e-commerce
industries in the UK to flourish.
11. Oftel currently has ex ante regulatory
powers under UK and European telecoms law, and concurrent powers
under the Competition Act.
12. Oftel also has suffered 47 per cent
turnover in key regulatory staff in 2000, and 27 per cent in calendar
2001. Competition and regulatory economists and analysts are in
extremely short supply. Oftel has taken measures in its draft
2002-03 Management Plan to address pay, training and conditions.
13. Operators are concerned to keep the
cost of OFCOM below that of the existing content and carriage
regulators, but to enable it to perform both existing ex ante
duties more efficiently, and new Competition Act and EU Directive
powers in addition.
LESSONS FROM
LOCAL LOOP
UNBUNDLING
14. Consider the lessons of local loop unbundling
in 2000-01. The requirement for "lighter touch" but
effective regulation of BT is to monitor its performance both
towards its own retail division, and to current and potential
competitors such as ourselves. The requirement to master the "devil
in the details" required resources which the regulator could
not initially provide. In consequence, competition suffered, and
ultimately consumers received broadband more slowly and at greater
cost than otherwise.
15. Learning from the LLU mistakes is an
essential requirement. Oftel is showing signs in its inquiry into
business broadband (leased lines) of learning the lessons of detail,
of requiring BT to monitor its performance. This requires technical
and economic skillsets that are in short supply.
16. Regulatory resourcing is a zero-sum
game. In order to minimise costs and head-count, it is necessary
to prioritise objectives.
OFCOM'S CENTRAL
PRIORITY
17. We believe that OFCOM in 2003-04 can
have only one central objective: to unblock gateways owned by
dominant companies, in order to allow the benefits of the Information
Society to flow to businesses, households, content producers,
broadcasters and citizens.
18. In order to create the conditions for
gateway regulation—ex ante regulation— OFCOM needs
the tools for the job. Without regulatory concentration, British
Telecom and its mobile and pay-TV equivalents will be able to
abuse their dominant position to the detriment of consumers and
citizens.
19. We urge the Select Committee to call
oral evidence to explore the central priorities for OFCOM going
forward. Without effective ex ante carriage regulation, there
is no opportunity to select a diversity of media and cultures,
or of owners.
We would welcome the opportunity to address
and expand upon these points before the Committee. Individual
detailed submissions by signatories to this letter also inform
our recommendations to the Select Committee. We look forward with
great interest to the Committee's deliberations on the Bill that
will define regulation of the communications industry in the broadband
future.
11 January 2002
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