Examination of Witnesses (Questions 74-79)
1 MARCH 2005
Ms Karen Thomson, Mr David Carr, Mr Eric Abensur,
and Mr Simon Persoff
Q74 Chairman: Good morning. Perhaps you
could introduce yourselves and then we will get started.
Ms Thomson: I am Karen Thomson,
I am Chief Executive and Chairman of AOL UK. Can I introduce,
on my left, David Carr, who is my Vice President of Broadband,
responsible for various broadband services in the UK?
Mr Abensur: I am Eric Abensur,
Chief Executive of Wanadoo UK, and Simon Persoff is the Director
of Regulatory Affairs for the UK.
Q75 Chairman: Thank you. Very quickly,
on the question of the review to-date: this is a new body, starting
with a slightly different approach from its predecessor, how do
you feel about them? What is your view of the review at present?
Mr Abensur: Very good. Extremely
positive, I think. We attended this Committee in December 2003
and reading again your report, I think we said at that time that
we were cautiously optimistic about the new body, and I think
every action they have undertaken so far has been extremely positive.
So I think the consulting period they have launched and the key
decisions they have taken during the first half of 2004 were extremely
positive and gave some very good messages to the industry. So,
so far, we would say we are quite positive about what Ofcom has
delivered to the market.
Ms Thomson: We would echo that.
It has been a good consultative approach. I think a lot of the
issues have been put on the agenda and really opened up in a way
that we did not feel was happening before that. Getting a clear
roadmap for competition on the agenda was extraordinarily helpful.
I am going to avoid any reference to puddings or eating but it
is quite clear that moving forward it is now all about how it
is executed, how competition is brought into the market, and that
will ultimately be the proof of the strength of the process. However,
a good start.
Q76 Chairman: Obviously, we have had
to look this morning at LLU and in a number of instances we have
been discussing the price reductions and the access to LLU. Are
you happy that things have gone on far enough there? Are the prices
low enough? Is access reasonable enough now to the LLU process?
Is there anything else Ofcom needs to do in that area, do you
think?
Mr Abensur: I think we said, once
again, twelve months ago, when we started this discussion regarding
Local Loop Unbundling (and this Committee was, really, the first
to start launching again the Local Loop Unbundling in the UK—and
we thank you for that), we made this comment, and your report
made this comment—I think it was in paragraph 32—about
the fact that there is some criteria to make sure that local loop
can expand positively. Those criteria, in my mind, are about price,
about processes, and the third point was stability. You mentioned
that stability in your report twelve months ago. The price we
have; I think the price has come down quite dramatically. The
processes: we have this Telecom Adjudicator scheme and I think
all of us agree it has created some positive dialogue. We are
still very early in the process but it is positive, again. The
third is about stability. When we have to build a business case
for investing in Local Loop Unbundling, yes, you talk about margin
but this business case is for the next five, six or seven years,
so you want to make sure that your key assumptions are likely
to happen, and if over the next two or three years some key assumptions
have been jeopardised, yes, we may have an issue and we may have
some concern. So I think we have reached the two criteria of stability,
in terms of price—we are happy about the price of Local
Loop Unbundling—and we are happy about the way the process
has started. However, we have a question mark about stability:
margin stability, and the stability of the regulatory framework,
and a question mark about the 21st Century Network—that
is the kind of concern and question mark we may have today.
Ms Thomson: I would certainly
echo some of that: on the pricing we are broadly happy; on the
process side I would point out we manage a customer base of well
in excess of two million customers in the UK, most of whom will
go to broadband at some point. When you look at the quality of
the processes to support a migration from IP Stream—the
technology we are currently dependent on—across to LLU,
we have to be striving for extraordinarily accurate and solid
processes. Where we are at the moment is definitely not the quality
that we would require to be able to effect a significant migration
across to LLU. I understand it is early days and I think the Adjudicator
is doing a very good job, but with the size of customer base that
we are talking about we absolutely have to nail these processes.
On the environment side, what we absolutely have to have is an
environment in which the investment cases can be put and in which
we have some stability. The removal of IP Stream from the regulatory
framework was, frankly, unhelpful and I think we have seen the
result of that in BT's announcements on deaveraging, and that
does impact on the business cases that we have been putting together.
So it is really about creating a more stable environment in which
investments can be calculated and then brought to market. I will
pass over to David, because he is the person in my team who is
putting those business cases together and doing this on a day-to-day
basis.
Mr Carr: I would agree with what
Karen says. I think the business case works very well in the early
exchanges, it is when you start trying to really push LLU out
as we would like to do to some of the further exchanges that,
the pricing around backhaul still requires some work; that is
an area that I know the Office of the Telecoms Adjudicator (OTA)
are looking at and needs additional work. On the processes, I
have just underlined the importance of that. We are talking, currently,
of about 30,000 people, from my understanding, on LLU, and over
the next two years we are talking about pushing several million
out there, and that just requires a completely different infrastructure
than is in place at the present time.
Ms Thomson: I think that comes
back to quality and quality of delivery. I think it is one of
the things that we certainly have active discussions with BT on,
which is about benchmarking against world-class quality standards
rather than incrementally improving standards which, frankly,
we do not think will be enough to get us there.
Q77 Mr Clapham: I think you were all
sat in when your colleagues from ISPA said they still have some
reservations about the wholesale market. Do you feel that Local
Loop Unbundling can overcome some of the issues with the wholesale
market, or does it have the potential to perhaps undermine it?
Ms Thomson: I think if you project
forward a number of years and in a situation where there are a
number of large players using LLU, you would potentially have
a lot of product and service innovation. LLU also provides the
ability for smaller and perhaps more regional players, more specialist
players, to compete. Provided we get the environment right, then
I think LLU will bring a much more vibrant, competitive market.
We have already seen over the last couple of years how more competition
has brought us much more reach into the network; the demand has
been higher than anybody anticipated and certainly than BT anticipated
at the time. So I think it is really about the structure and environment
that we now require to make that picture come true. So it is really
about making sure that the practical aspects of allowing competition
into the market, to get the customers migrated, to ensure that
product and service innovation are running, and that is really
about getting through the next couple of years positively and
proactively, and seeing that the investment case has really been
proven. If we can get there it will be an extraordinary market—very
dynamic and very colourful—and there will be lots of different
aspects that we have not necessarily thought of yet, but we have
to make sure that the environment is right to get us there.
Mr Abensur: Just one additional
comment to what Karen and David said regarding the number of lines
unbundling in this country. Today it is 30,000. Every time I use
this example, which is pretty easy for me, which is the French
example: we have in France 1.7 million unbundling lines. To get
to this position, probably, the best case would be, I would say,
the end of 2006. I hope as quickly as that. But it requires everyone,
not only Ofcom and key players but BT, to be really working extremely
hard to help on the migration and on the processes. So we talk
about Local Loop Unbundling; we have said we were extremely positive
and optimistic but it is still the early stage (mentioned by Karen).
Yes, it is the early stage. Once again, in relation to stability
for the next two or three years, it is extremely important that
we have that—extremely important. In two years' time, when
we will have 1.7 to 2 million unbundling lines in this country,
which means, probably, I hope, 20, 25%—perhaps a third—of
all the lines of DSL unbundled, yes, maybe we can talk about some
other services, some other way to improve the competition, but
let us try to get there.
Q78 Mr Clapham: As an organisation, you
support the concept of equivalence but you express some reservations
with it. Are the measures that BT are taking adequate, do you
feel?
Mr Persoff: I think, on a very
high level, BT has agreed that the principle of equivalence is
appropriate, and that is positive and we support it. The phrase
"the devil is in the detail" has been mentioned previously
today. We are concerned in terms of what they mean by "equivalence"—are
they talking about BT retail using the same products and services
as their competitors do? Mr Simpson from Easynet previously mentioned
it would be a very good idea if BT, when implementing their 21st
Century Network, were to use the same products, processes, systems
and prices—ie LLU—as we would have to if we wanted
to build our 21st Century Network. So issue number one is what
they mean. My fear is that, in some parts of their network, because
some of BT's products claim that inputs equivalence is not appropriate
and, rather, there should be this continued discriminatory access
to monopoly assets, a much more watered down version of equivalence
is applied. However, it is not only in terms of what type of equivalence
we have to ascertain, it is also the issue of how is it measured?
We are totally reliant on BT to tell us "Yes we are compliant
with the principle of equivalence"; we do not have access
to anything more than BT's regulatory accounts, which are not
the most detailed documents in the world. We feel that there is
an ongoing need for Ofcom to assess BT's compliance, and that
while BT might be setting up a board to oversee its compliance
with equivalence this is not a replacement for Ofcom and the regulatory
process. We feel that going forward, in order for BT to demonstrate
that they are serious about going forward and stopping discriminatory
access to these monopoly assets, Ofcom should take a much more
interventionist approach than BT is suggesting is appropriate.
Q79 Mr Clapham: Are any of your concerns
known to Ofcom?
Mr Persoff: The industry, as a
whole, finds Ofcom listening; they are looking at a range of options
and, of course, not wishing to fetter their discretion, have expressed
support for the general principles. My concern is that there might
be some element of bartering going forward between equivalence,
or general opportunistic deals which might be done, whereby for
a certain product range to find a weaker level of equivalence
BT will give ground on another issue. We think, overall, that
the principle of equivalence must be looked at not only in terms
of the regulatory environment but also in terms of competition
law. It is our view that any discriminatory access which BT's
retail business units gain from monopoly assets is de facto
unlawful; you have got to look at that context when looking at
what type of equivalence is appropriate. We mentioned in our response,
both to Ofcom's Strategic Review and in our submission to the
Committee, that we believe that BT does not naturally have a dominant
position in retail markets, and that the only reason it has dominant
positions in retail markets is because of this discriminatory
access to these enduring economic bottlenecks. We are happy that
Ofcom is listening. The industry has, clearly, priorities: different
players wish different products to be at the forefront of the
focus of Ofcom; Wanadoo has clearly stated that LLU is its focus,
although we also rely on wholesale broadband products, and going
forward we will continue to rely on wholesale broadband products
for those areas in which LLU is not viable. We do find Ofcom to
be engaging in this area.
|
