Memorandum submitted by UK Competitive
Telecommunications Association (UKCTA)
INTRODUCTION
The UK Competitive Telecommunications Association
(UKCTA) welcomes the opportunity to engage with the Select Committee's
inquiry and hopes that the following comments will be of assistance
to the Committee.
UKCTA's overall aim is to foster a more competitive
fixed telecommunications market in the UK, based on a regulatory
framework that treats all competitors in this field equally and
fairly. Our mission is to advocate industry regulation that is
pro-competition and does not favour the nation's largest monopoly
fixed-line incumbent. UKCTA's membership is made up of the vast
majority of the UK's alternative fixed-line network operators.
Should the Committee wish to explore any of
the issues raised in this submission, UKCTA would be happy to
discuss these with the Committee.
EXECUTIVE SUMMARY
— The universal service commitment is bold,
but we caution against an undue focus on headline speeds alone
— Any funds raised by a levy or other method
should not simply be channelled to BT as a default, it should
be open to all providers to bid for such funding
— If the Government's NGA plans are to
work, more needs to be done to safeguard existing and promote
further competition
— Ofcom has recently published research
on the actual broadband speeds being experienced by consumers
— There is a continued mismatch between
economic aspirations for broadband and a neglect of the needs
of business customers
THE COMMITTEE'S
QUESTIONS
1. Whether the target for universal access
to broadband at a speed of 2Mb/s by 2012 is ambitious enough?
While the target speed may be regarded by some
as low in the context of speeds already widely available in the
UK, it should be recognised that the proposal is for a minimum
universally available speed. We do not believe any other country
has committed to a Broadband USO so the move is bold and innovative
(compare against the current USO which mandates the provision
of "functional internet access" at a speed of 28.8kbit/s).
However we would caution against an undue focus
on headline speeds alone. This can be very misleading. The customer
experience is influenced to a significant degree not only by the
headline speed of the local connection but also by the throughput
and usability which are both harder to quantify in absolute terms.
Issues such as contention in the network and demand on the web
site being viewed can seriously degrade experience notwithstanding
the headline speed of connection. Such issues might be blamed
(wrongly) on the connection speed by customers.
As a base level for the harder to reach areas
of the UK it is probably ambitious enough given that the bulk
of population will have better speeds available.
2. Is the Government right to propose a levy
on copper lines to fund next generation access?
It is difficult for UKCTA, as an association
representing communications providers, to reach a view on a taxation
matter. We do question whether telephone users are the right target
for such a levy since the beneficiaries of an extension of broadband
availability will be the content providers. Many telephone users
will see no benefit at all since they will either (a) be perfectly
happy with the services they currently receive or (b) have no
interest in or need for broadband. We are also concerned that
the funds might simply be diverted to BT and result in a distortion
of the competitive market. Our experience of incumbents throughout
Europe is that they are currently lobbying hard to argue that
they and they alone can invest the sums required to deliver faster
broadband, but public subsidies will be required for those areas
that are not commercially viable. They also argue that in return
for investing their own money, the regulatory constraints which
typify the telecoms industry ought to be relaxed. We believe that
if such calls are granted in the UK then consumers will suffer
as competition is damaged. The Committee will know that Virgin
Media has invested (and continues to invest) in high speed broadband
without any state funding or special favours from the regulator,
and many UKCTA members have invested in the business market. We
believe it is vital that the competitive market which has served
the UK so well over the last twenty years is not distorted by
any well intentioned proposals to ensure that NGA investment takes
place.
3. Will the Government's plans for next generation
access work?
The success of NGA is entirely contingent on
a vibrant competitive landscape and, as such, it is vital that
any government intervention and regulatory initiatives allow communications
providers to continue to compete at the right point in the value
chain. What this means in practice is that the successful roll
out and adoption of NGA-based services will require improved supply
conditions for fibre-to-the-premise (as opposed to the Fibre-to-the-cabinet)
and viable wholesale products to be made available to allow competing
service provision (whether so called active or passive remedies).
Furthermore, the allocation of any public funding
can and should be devoted to supporting infrastructure which maximises
customer benefit and competitive benefits. Consequently, tenders
for funding should take into account not just the short term installation
cost, but also the service provided, openness of the network to
competition (eg point to point fibre) and future implications
such as ease of upgrading the infrastructure and expected lifespan
of the investment. The principle of "best economic offers"
should be not be interpreted so as to support incumbents who may
benefit from legacy assets and favourable financing conditions
and thereby exclude competitors from being able to bid effectively.
Additionally, much more could be done to encourage
fibre rollout for example by reducing the tax burden which BT's
rivals face when they light fibre optic cables. The Government
promised to investigate and reform this area as long ago as 2003,
yet despite Ministerial promises, nothing has been done. Operators
other than BT face regulatory uncertainty as to the tax treatment
of any NGA investment since the way in which business rates will
be assessed will be decided only after the investments are made.
BT of course is rated in an entirely different way and is therefore
able to make investment decisions, secure in the knowledge that
they will not impact in any way on their total rates bill. This
anomaly is bound to have an impact on the ability of BT's rivals
to compete in the NGA market.
4. Are companies providing the speed of access
which they promise to consumers?
The regulator has only recently introduced a
broadband speed code of practice so too soon to judge whether
it has had an impact. In July Ofcom published further research
into this area which highlighted the difficulties in forecasting
a customer's connection speed. Rather than attempt a detailed
explanation ourselves, we would refer the Committee to that research.[168]
5. The extent to which current regulation
strikes the right balance between ensuring fair competition and
encouraging investment in next generation networks?
UKCTA is concerned that any moves to relax regulation
in order to encourage investment should not be at the expense
of the conditions which have led to the development of the competitive
market which currently exists in the UK. Linked to this, it is
important that any funding is accessible to all (ie all providers
can bid for public funding) and that the provision of any public
funding is examined carefully to ensure that the Government does
not inadvertently crowd out viable private investment and that
there are no external distortions such as the regulatory uncertainty
created by the business rates regime in relation to all operators
other than BT. Any use of public funding must also be fully compliant
with state aid rules in order to ensure that the potential for
competition is maximised.
6. Any other views stakeholders think the
Committee should be aware of.
UKCTA is concerned that the current debate and
the recent Digital Britain paper focus unduly on consumer broadband
and the needs of British businesses are rarely taken into account.
UK businesses will be critical in delivering the hoped-for economic
benefits—they will not be delivered solely by consumers
using home broadband no matter how fast it is. By failing to consider
the distinct needs of businesses, there is a risk that the Government's
initiatives neglected those needs in favour of delivering IPTV
and a universal 2 Mb service to consumers.
A number of recent studies have emphasised the
need for a separate consideration of business needs to drive the
right network build infrastructure: UKCTAi, INTUGii and CMAiii.
The telecoms requirements of business users
are different—guaranteed bandwidth, higher upstream speeds,
geographically dispersed sites, better SLAs. Multi-site requirements
in particular drive the need for consistent services nationwide.
Medium to large enterprises already depend on fibre based products
rather than copper. The demand for higher speed business services
from SMEs is pushing the case for new lower cost Fibre-To-The-Premise
(FTTP) infrastructure to be deployed.
The implications for competition are serious:
the current "NGA" initiatives in the press are focussed
primarily on next generation consumer Broadband and are in the
majority of cases based around Fibre-To-The-Cabinet (FTTC). The
discussion on how to fund the FTTP requirement for UK businesses
hasn't even begun.
Current dissatisfaction with consumer Broadband
products centring on issues such as true link speeds, high contention
ratios, bandwidth capping and application blocking are all perfect
examples of why even the next generation of copper based Consumer
products should not be seen as fit for purpose for 21st Century
UK businesses.
This is much more than a missed opportunity,
there is already clear evidence that the Government believes that
Digital Britain is the definitive industrial policy for the telecoms
sector and will deliver great economic benefits to the UK. The
industry fears that the policy reforms needed to meet the telecoms
needs of UK businesses will not now happen as the Digital Britain
"roadmap" focuses almost exclusively on next generation
consumer products.
Rather than grabbing headlines, the government
and regulator should focus attention on where the problems are—in
the network areas where competition will not solve the problem,
where BT's significant market power remains at its strongest.
It is competition that drives network investment, not regulatory
holidays.
Government should ensure that it is directed
at Openreach rather than the wider BT group since Openreach will
be involved in delivering service to circa 90% (est) of business
customers at some stage regardless of who provides their service.
Openreach, as the custodian of the vast majority of the nation's
fibre and copper assets will be a key player in the delivery of
Digital Britain initiatives and must allow the benefits to be
shared among all CPs and their customers rather than being confined
to BT customers.
REFERENCESi Communications—Life-blood
of Enterprise, UKCTA (the UK Competitive Telecoms Association).
Paper highlighted the problems that a lack of business focus gives
rise too. It made nine key recommendations, none of which, a year
later, have been addressed. The only gesture Ofcom has so far
made to considering business needs in distinction from consumer
ones is a commitment to undertaking a survey as part of this year's
Annual Plan. This is thoroughly inadequate.
ii http://www.intug.org/download/algemeen/Barrett%20Final.pdf.
provides further clear evidence of the importance of developing
networks and services fit for the business community to country
economies. It shows how the current European bias towards a focus
on consumer needs fails to result in the right design, regulation
and implementation of networks for electronic communications
iii Improving business communications in the
UK—27 March 2008. The lack of business focus was picked
up recently in a paper compiled by the CMAiii. The document presents
a clear vision as to how the government should be working to improve
people's economic and social well-being by addressing the needs
of enterprise customers to help generate growth, provide jobs
and provide wealth creation. The paper points out how the UK's
electronic communications sector contributes around 2.3% of GDP
with an industry turnover of £38.8 billion in 2007.
The contribution of multi-national enterprises and their supply
chains which rely on these facilities approximates to 35% of GDP.
"About two-thirds of the revenues received by the telecoms
industry come from public and private enterprise. The disparity
in contribution is in inverse ratio to the political and regulatory
focus which embraces protection of the "citizen-consumer"
rather than supporting, or even recognising the needs of the business
user"
September 2009
168 http://www.ofc Back
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