Select Committee on Trade and Industry Thirteenth Report


Conclusions and recommendations

Availability and speed of broadband

1.  ADSL broadband is now available to 95% of households and Ofcom predicted that it could be as high as 99.6% by summer 2005. Given this rapid roll-out, we agree with Ofcom that it is sensible to wait and see whether market forces can achieve 100% coverage in a reasonable timeframe before considering intervention such as a Universal Service Obligation (USO). (Paragraph 3)

2.  With such a rapid increase in the availability of faster broadband speeds, we do not think it wise to set definitions of what constitutes broadband as these are likely to be obsolete within a short space of time. (Paragraph 4)

3.  We are aware that the current network has a physical upper limit of between 18 and 24MBp/s and that countries such as Japan and South Korea have networks that can support considerably faster speeds. But speeds of 18MBp/s are entirely adequate for the uses to which broadband will foreseeably be put, so we reiterate that we do not see an immediate case for the sort of massive investment that increasing speeds beyond this would require. Broadband take-up is accelerating rapidly but with fewer than six million homes connected, it would seem sensible to focus on increasing the use of the existing infrastructure before looking to replace it. (Paragraph 5)

Local Loop Unbundling (LLU)

4.  If there was evidence of burgeoning investment in full, end-to-end infrastructural competition, along the lines of the existing cable network, or of the prospect of alternative access networks (such as fibre or wireless), being rolled out in the foreseeable future, then we might be less convinced about Ofcom's decision to pursue infrastructural competition via LLU. But they have told us that this is not the case; as they noted in their consultation, even NTL, with its substantial cable network, has no plans to roll this out further and is instead looking to expand via LLU. (Paragraph 16)

5.  The reliance on BT's wholesale products has resulted in a market with very little product differentiation. LLU, if successful, will contribute to the achievement of a more dynamic and innovative market and it can do this in a relatively short timeframe. Whilst the benefits of LLU will inevitably be concentrated in the most populous areas which will be the earliest targets for unbundling, the process will spread if successful. It also has the potential to drive innovation into the market as a whole, and successful competition on BT's access network can also lead to future investment in alternative access networks and in areas such as backhaul. (Paragraph 17)

6.   We consider that competition has the potential to overcome the enduring bottleneck in the access network, rather than reinforcing it, as NTL suggest. (Paragraph 17)

7.  The uncertainty about the likely extent of LLU raises the question about geographical variations in regulation. With LLU, at least initially, confined to the more densely populated areas, much of the population will continue to rely on BT's wholesale products (though with competition from cable in some areas). This, and BT's decision to 'de-average' prices, demonstrates that competition will vary significantly throughout the country and suggests that the regulatory regime may need to take this into account. The disadvantage of this is that, in treating different areas differently, competition is effectively excluded. Consequently, we would recommend this only as a last resort. We would prefer to see a strategy based around promoting competition as widely as possible and only when this strategy is exhausted, look to regionally varied regulation. (Paragraph 21)

Equality of Access

8.  We are not in a position to judge the extent to which BT has 'misbehaved' in the past. We acknowledge their record on compliance, but it is hard to see the decision to de-average wholesale broadband prices in the LLU target areas as anything other than an attempt to inject uncertainty into the process. The justification that they are obliged to offer a low price to their ISP clients does not really convince—are the ISPs operating in the less populous exchanges not entitled to a low price, too? (Paragraph 37)

9.   In our last Report on this subject, we concluded that the case for forcing BT to structurally separate had not been made, and noted that the benefits of separation were only those that a successful properly designed and implemented regulatory regime should be ensuring. This remains our position. We agree with Ofcom that input equivalence should be pursued where practicable, with properly monitored outcome equivalence as a substitute where necessary. Only if equivalence proves unworkable should moves towards forcible structural separation be initiated, and the judgement that it is unworkable must be against objectively defined measures of success and not merely on the basis of suspicions of management 'scheming'. (Paragraph 39)

10.  Putting equivalence into practice may, of course, lead BT to conclude that vertical integration is no longer beneficial and to voluntarily separate. This is, of course, a matter for BT's management and shareholders but it does not seem an imminent possibility. Furthermore, there is a clear difference between this and forced structural separation, with the divisions being made on the basis of efficiency and practicality rather than regulatory diktat. Furthermore, given the massive investment that BT is planning to make in its '21st Century Network', it would seem to us unlikely. (Paragraph 40)

11.  The implications of the emergence of 'Next Generation Networks' (NGNs), which integrate services such as data, telephony, and video, such as BT's 21st Century Network, for telecoms regulation remain to be seen. However, the prospect of an entirely new, end-to-end network clearly has the potential to introduce a more effective version of equivalence from the start. We are pleased to hear that BT have been consulting on this from an early stage. (Paragraph 41)

12.  Ultimately, we agree with Ofcom's broad strategy and we welcome BT's initial response to it. Whilst BT's competitors may complain that these proposals do not go far enough, they represent a constructive engagement with the consultation. We recognise that much depends on the detail, and understand BT's competitors may wish to reserve judgement on Ofcom's plans until this is known. However, issues such as timing, enforcement, and monitoring are matters for consideration once the principle has been established, and Ofcom has rightly decided to deal with these in the next phase of its Review. We have no doubt that our successors will wish to examine the regulator's further proposals in due course. (Paragraph 42)


 
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