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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