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Broadband is a UK success story. Our own research has shown that more than half of all UK households have a broadband connection, served by around 500 different internet service providers.

Furthermore, over 99 per cent of the UK is now connected by a broadband-enabled telephone exchange, meaning that most people who do not yet have it have the opportunity to take the service.

In addition, headline broadband speeds have doubled in 12 months and prices have fallen by nearly 10 per cent.

Next generation access

Ofcom is now considering how to promote investment in the next generation of broadband networks, while sustaining competition.

Most broadband networks are copper-based – this is the wire that goes from the telephone exchange to your home or place of work. To date, copper networks have been sufficient to meet consumer demands. Increasingly, consumers are now demanding faster broadband speeds, due to new internet services, such as video downloads. One way to deliver this is over networks based on fibre-optic cables, with potential speeds of up to 100 Mbs.

Fibre networks, known as Next Generation Access (NGA), offer a large future opportunity for UK businesses and consumers and their potential impact on the economy could be significant. But the cost of laying a fibre network is very high, with some industry estimates putting it at tens of billions of pounds.

In September 2007 we published proposals looking at how existing telecoms regulation could evolve – based on the current principles of promoting competition, maximising innovation and the need for equivalence of access for market players – to promote investment in NGA.

In addition, we published separate proposals on fibre networks to new property developments, shortly after the period under review.

With these two important pieces of work Ofcom is working closely with the Government, which is conducting its own review of next generation broadband, considering issues that fall outside Ofcom’s remit, such as business rates and planning regulations.

Deregulation in competitive markets

 

Ofcom seeks to regulate only where there is a clear need. When there is effective competition in a market – which offers consumers choice and lower prices – then Ofcom seeks to deregulate where possible. In the previous reporting period we removed retail price controls on the line rental and calls for BT customers, some 22 years after they were first imposed. This significant deregulation was enabled by the rapid growth of competition and continued reductions in the cost of phone services to customers.

In November 2007 Ofcom published a review of the wholesale broadband market. In it we proposed to remove regulation in areas of the country where strong competition was now in place.

The European Commission backed these proposals in February 2008 and we announced the deregulation after the period under review.

The pay-TV market

From its fledgling days in the early 1990s, pay-TV has burgeoned into a market serving more than 11 million customers. It also generates more than £4bn, making it the largest source of revenue for the broadcasting industry.

However, there are some warning signs which need to be considered, such as consumer choice. With the advent of new television platforms and content providers, and the increasing importance of convergence, pay-TV’s past may not necessarily be an accurate guide to its future.

In March 2007, Ofcom received a submission from BT, Setanta, Top Up TV and Virgin Media requesting an investigation into the pay-TV market, and whether to consider a reference to the Competition Commission under the Enterprise Act 2002. They alleged that competition in the industry was not working effectively, and that there were certain characteristics preventing it. BSkyB disputed this, citing why it believed competition was working, and how customers benefited.

In December 2007, Ofcom published a consultation seeking stakeholders’ views on the market; we will publish further findings as part of our investigation in 2008/9.

Separately, in October 2007, BSkyB made a joint proposal with National Grid Wireless to replace its free-to-air channels on digital terrestrial television (DTT)

with pay-TV services. This proposal would see Sky Sports 1 and, in the evening, Sky One and Sky Movies SD1 replacing Sky News, Sky Sports News and Sky Three on DTT.

Ofcom published a public consultation on the proposal to which we received around 450 separate responses.

BT’s Undertakings

In 2005, Ofcom accepted a series of Undertakings from BT Group. These were designed to promote equality of access to all communications providers, with the aim of promoting effective competition.

As part of this, BT Group was required to set up a new operationally separate business responsible for BT’s local access and backhaul network. BT named this Openreach.

Communications providers use a range of Openreach products to allow them to offer retail services to business and residential consumers.

The Undertakings and the creation of Openreach have delivered many benefits, with nearly three-quarters of telephone exchanges now ‘unbundled’, meaning that BT’s competitors have access to the network.

However, following complaints from telecoms companies that Openreach was not sufficiently focused on meeting the needs of all its wholesale customers, in March 2008 Ofcom announced a new package of incentives for Openreach to offer a high-quality service to its customers. The new rules require Openreach to compensate all communications providers where it fails to provide and repair services according to agreed targets.

• Ofcom Annual Report 2007/08 - Section B [pdf]
• Adroddiad Blynyddol 2007-08 Ofcom - Adran B [pdf]

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