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Networks

In September 2005, following its Strategic Review of Telecommunications, Ofcom accepted Undertakings from BT Group plc. The Review set out a new regulatory approach for fixed-line telecommunications to enable genuine competition at the deepest levels of infrastructure for the benefit of both consumers and the communications sector as a whole.

Securing competition in fixed-line telecoms

Implementing the Undertakings

The Undertakings were designed to deliver real equality of access to all providers and required BT Group plc to set up a new and operationally separate business responsible for BT’s local access and backhaul telecoms network. BT launched this business – named Openreach – in January 2006.

In 2006/7 BT continued to implement the Undertakings, monitored by Ofcom with the publication of quarterly progress reports. There are indications of increasing infrastructure-based competition in broadband and fixed-voice markets, resulting in greater choice and improved pricing for consumers.

For products provided over BT’s copper network – primarily used for the residential and small business markets – wholesale take-up continued to grow. When the Undertakings were accepted by Ofcom in September 2005, Local Loop Unbundling (LLU) take-up stood at 123,000. By March 2007 this had grown to two million. Over the same period, the proportion of properties connected to an exchange with LLU equipment installed had expanded from 40 per cent to 70 per cent.

Removing retail price controls

Some 22 years after retail price controls were imposed to limit increases in the price of line rental and calls for BT customers, Ofcom announced in July 2006 that they would be removed. This significant deregulation followed both the conclusion of Ofcom's Strategic Review of Telecommunications and the specific public consultation, launched in March 2006, on removing retail price controls.

Ofcom stated that this deregulation was enabled by, and reflected, the rapid growth of competition and continued reductions in the cost of phone services to customers. More than 10.7m UK households and small businesses now used a telecoms provider other than BT – among them, more than 4.6m cable customers – enjoying some of the cheapest phone costs in the world.

The removal of price controls was announced in a public information campaign, (“It's your call”), which was managed by Ofcom and paid for by BT together with a contribution from Ofcom. The campaign, which comprised press, online and outdoor advertising, sought to make customers aware of the change and to encourage them to understand the choices open to them in a competitive market. Despite the deregulation, BT gave a number of assurances to offer additional protection to customers on low incomes, and vulnerable groups. The company agreed to limit increases on its basic line rental product, which for many represents the overwhelming majority of their bill.

Next Generation Networks

The introduction of Next Generation Networks (NGNs) will be one of the most significant changes to fixed-line telecoms networks since competition was introduced two decades ago. Core NGNs make use of digital technology to connect calls and other network traffic more efficiently than traditional telephone networks and NGNs have the potential to deliver significant benefits to consumers, with the prospect of new services delivered at a lower cost.

One of Ofcom’s priorities is to create the conditions for all providers – including BT which is currently developing an NGN – to invest in NGNs but to also ensure that investment does not distort competition. To encourage progress Ofcom established a new industry body, NGN UK, in March 2006. In the 12 months since it was formed under the Executive Chairmanship of Peter Black, NGN UK has increased its membership and has made progress in agreeing the technical arrangements for NGNs.

Another aspect of future networks is Next Generation Access (NGA), a technology upgrade between homes and offices and the local telephone exchange. Communications providers could use a number of technologies to build an NGA network, including fibre, cable, wireless or upgrades to the existing copper-based networks.

In November 2006 Ofcom published a discussion document examining a series of questions in relation to future NGA networks, which was the opening stage of Ofcom’s work to develop a clear view on the regulatory approach for NGA in the UK.

Telecoms and the consumer interest

Switching broadband providers

Broadband is one of the fastest-growing consumer technologies of recent years. Ofcom’s research found that by the end of 2006 half of UK adults lived in households with a broadband connection. As the market grows, providers are increasingly seeking to attract competitors’ existing broadband customers. In turn, customers depend on a reliable and seamless switching process to exercise choice and benefit from the competition.

The increasing momentum of broadband uptake, and the rising number of providers seeking to attract existing customers from competitor companies, led Ofcom to review the effectiveness of industry-wide processes to switch between those providers.

In August, Ofcom published a consultation on proposals to make it easier for customers to transfer between providers. Ofcom found that while in the majority of cases the switching processes were effective, when problems arose they were often serious and caused disruption to customers. In particular, Ofcom heard complaints from consumers who had found it difficult to obtain a Migration Authorisation Code (MAC), without which it was very difficult to move providers and also posed the risk of being without a broadband service while the transfer went through.

Ofcom announced new rules in December 2006 that made it mandatory, from 14 February 2007, for broadband providers to supply consumers with a MAC, and to do so free of charge. This includes wholesale providers who may in the past have withheld MACs in the event of a dispute with retail providers; the new rule requires them to issue a MAC regardless of any dispute.

A more robust MAC process would also help alleviate another problem known as 'tag on the line'. This refers to instances where customers wish to sign up to a new broadband service – for example, when moving into a new home – only to discover that a pre-existing broadband connection is already registered to that line in the name of the previous resident. The new rules required providers to make sure that tags and other operational issues do not hinder customers' ability to switch.

Consumer information about VoIP services

The reporting year saw the launch of a range of Voice over IP (VoIP) services by a number of different providers. The appeal of VoIP lies in cheaper calls – especially calls from one VoIP service to another – as well as new services such as call handling and unified messaging.

Following a public consultation, Ofcom announced in March 2007 a new regulatory code for VoIP service providers, designed to ensure that consumers have access to important information about the capabilities of their service. All providers would be required to comply with the code by June 2007, and make clear:

if the service includes access to emergency services;
the extent to which the service depends on the user’s home power supply;
whether directory assistance, directory listings, access to the operator or call itemisation are available; and
whether consumers will be able to keep their telephone number if they later choose to switch providers.

Challenging mis-selling in fixed-line telecoms

The term ‘mis-selling’ refers to inappropriate sales and marketing activities by a provider of a service. These activities include 'slamming', where a customer is moved from one provider to another without their consent or knowledge.

In May 2005, Ofcom introduced new regulations to combat mis-selling. General Condition 14.5 requires providers of fixed-line telephony to establish, and then comply with, a code of practice governing their sales and marketing activities. The rules were due to expire in May 2007, and in February 2007 Ofcom published proposals to extend the regulations past that point.

Ofcom also proposed to extend the reach of the General Condition to include providers of services facilitated by Local Loop Unbundling (LLU). Although historically the number of complaints relating to LLU has been low, Ofcom believed that the potential for consumer harm could increase with the rising trend of providers migrating their customers to LLU. Ofcom sought views on its proposals by April 2007.

In May 2007, after the reporting period, Ofcom announced that rules protecting consumers from the mis-selling of fixed-line voice call services covered providers that offer voice and broadband services using full LLU technology.

Price and service comparison

Ofcom’s research has shown that consumers are more likely to shop around if they have access to quality-assured price and service comparisons. In 2006/7, Ofcom launched two important schemes designed to bring about better comparison information for the consumer.

In July 2006, Ofcom announced the launch of TopComm, a scheme designed to provide customers with a guide to the quality of service levels offered by fixed-line telecoms providers in the UK. Available at www.topcomm.org.uk, all fixed-line providers with at least £4m net revenues and 100 million minutes of voice calls handled to end-users must participate in the scheme.

In December 2006, Ofcom announced a new price comparison accreditation scheme. The scheme is designed to help consumers choose between providers of fixed, mobile and international telephone services, as well as digital television and internet services.

Numbering

Numbering strategy

Telephone numbers underpin all telecoms services and play a key role in how UK households and businesses access and pay for services. Following a consultation early in 2006, and feedback from more than 200 industry and consumer respondents, Ofcom set out in July 2006 its approach to telephone numbering in the UK.

Ofcom announced four key priorities:

A new UK-wide 03 number range, which was to be introduced early in 2007. Calls to 03 numbers will cost no more than geographic numbers, and will be included as part of any inclusive call minutes or discount schemes for geographic calls. The new numbers will enable organisations to offer a single point of contact without making additional charges for the service.
Avoiding changes to 01 and 02 geographic numbers, mainly by improving the efficiency with which numbers are allocated. In the future, Ofcom would assess five years in advance where numbers would be most in demand and, in those areas, allocate blocks of 1,000 numbers (instead of 10,000).
Developing clearer and simpler structures for 08 numbers, with the first three digits of a number sending a signal about the cost and nature of the call. For example, for 08 numbers the structure might be:
- 080: Freephone (including current 0800 and 0808 numbers)
- 084: up to a lower rate (5p per minute on BT lines)
- 087: up to a higher rate (10p per minute from BT lines)
Protecting consumers from phone scams, by introducing a consumer protection test to providers applying for numbers. Ofcom also announced action to prevent scams on 070 personal numbers, which are often confused with mobile numbers. It announced an end to personal numbering in the 070 range by mid-2009 and the introduction in 2007 of mandatory pre-call announcements of call charges for personal numbering calls above a certain price.

For key performance indicators in numbering, see page 60 of Section C.

0870 numbers

In April 2006, Ofcom announced the last of its proposals relating to its review of all chargeable 08 number ranges (known as Number Translation Services, or NTS). Both mobile and fixed-line providers (including payphones) would be required to charge the same, or less, for 0870 calls as they do for national-rate calls to geographic numbers (starting 01 and 02). Should they wish to charge more, they would have to make a price pre-announcement (free to the caller).

Mobile telecoms

Number porting

A significant barrier to switching supplier can be the time - and possible complexity - it takes to move successfully. In the case of mobile phones, this can be exacerbated by the desire of many consumers to take their existing phone number with them to a new supplier.

In November 2006, Ofcom proposed that the ‘port’ time of transferring a number from one network to another following a switch should be reduced from the existing five working days.

Planned improvements were also announced for calls to ported numbers, which are currently routed via the customer’s original network. Ofcom set out proposals for a common database of numbers that would be used by all fixed and mobile providers to route calls directly to each customer’s current subscribed network.

Wholesale mobile call termination rates

The wholesale mobile call termination rate is the fee that mobile network operators (MNOs) charge to connect calls that are made from another fixed or mobile network. The regulations are designed to protect consumers from excessive prices, and Ofcom launched a consultation in September 2006 on proposed new controls on wholesale mobile call termination charges.

Having considered the responses to the consultation, Ofcom announced a set of new charge controls in March 2007 that limited the amount that MNOs could charge to other telephone companies for call termination. Taken as a whole, Ofcom expected that the new controls would bring about an average annual reduction in wholesale charges of £400m-£500m over four years, and that these savings would be passed through to retail customers.

Ofcom also concluded that each of the five MNOs continued to have significant market power for termination of voice calls on their networks; that controls were therefore still needed, and would now run for four years from 1 April 2007.

3G roll-out

The 3G licensees – O2, Vodafone, H3G, T-Mobile and Orange – each have an obligation to cover 80 per cent of the UK population by 31 December 2007.

Ofcom expects all licensees to meet these requirements. However, it is important that the companies understand the technical basis for any measurement of compliance with the roll-out obligation. In July 2006, Ofcom consulted on the proposed methodology for how 3G roll-out would be measured. After considering responses to the consultation, in February 2007 Ofcom concluded that it would:

assess coverage on the basis of data on base stations supplied by the licensees, and population data from the 2001 Census;
perform an engineering analysis of the signal strength receivable at outdoor locations; and
take sample measurements around the UK to verify the results.

For details of Ofcom’s spectrum release programme, see page 19.

For details of Ofcom’s work on international roaming, see page 41.