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Introduction

In April 2004, we published the phase 1 consultation of our strategic review of telecommunications (the 'telecoms review'). The review was designed to set out our strategy for our telecoms activities, and to create a new agreement between us, the companies we regulate and members of the public.

In that phase 1 consultation document, we asked five basic questions.

1. What are the main qualities of a telecoms market that is serving its customers well?
2. Where can we achieve effective, long-term competition in the UK telecoms market?
3. Should there be less regulation in telecoms? Or do the major companies have too much power for us to consider this route?
4. How can we make sure that new technology networks get the investments they need, and without delay?
5. Over the years, people have asked whether the relevant regulator should somehow break up BT, or increase other organisations' ability to compete with it. Do you think this is still a relevant question?

In our final statement, we answer these questions, and set out our strategic approach towards regulating telecoms.

1 Qualities of a telecoms market that is serving customers well

Our market research and consultation suggested that as well as basic, reliable telecoms services at low prices, businesses and consumers also want choice, and new services (such as broadband) introduced quickly. We considered that the most effective way of delivering this is through competition between telecoms companies running their own networks, wherever competition like this can be effective and long-lasting. We also showed that the kinds of competition that had benefited consumers up until now might not be able to exist in the same way in the future, so keeping our current regulatory approach was not an option.

Even if competition is the best way to deliver what consumers want, it won't work unless customers are able to make well-informed choices, and to switch suppliers easily. Our research showed that some groups of consumers had various difficulties in making these choices. Although you could say the same about other markets, there are features of some telecoms markets that make these problems worse, for example because people often find it hard to compare complicated price packages for telecoms services. Although we do not think that we should always leave this problem to the market, it is important that anything we do is aimed towards helping the particular groups of consumers who are having problems. We are making changes in a number of areas and will be looking at this issue in more detail in our wider review of consumer policy.

2 Where effective, long-term competition can be achieved

While competition between rival networks has proved to work well with mobile phones, this has not been the case with fixed-line telecoms. In fixed-line telecoms, we found what we called 'enduring economic bottlenecks' - in other words, parts of fixed-line networks where effective, long-lasting competition was unlikely in the short to medium term. For this reason, we think that regulation should aim to help competition between different networks outside these so-called bottlenecks, in other words wherever effective, long-lasting competition was likely to be possible. However, companies who wanted to compete like this still needed BT to give them access to parts of its fixed-line network. We concluded that before competition in fixed-line telecoms could be effective, BT needed to make such access available to its competitors on the same terms as it made it available to itself. We call this 'equality of access'.

3 Whether there should be less regulation in telecoms

If equality of access is introduced to allow access to these bottlenecks, we expect to be able to remove regulation elsewhere (for example, in some retail telecoms markets). Such deregulation could take two forms:

1. taking away some of the special rules that BT has to follow where we have found that it has a significant advantage over the competition in a particular market (called 'significant market power' or SMP); or
2. in some cases, finding that BT does not have any such significant market power, and so should not have to follow any special rules.

We have set out our approach to deregulation in the statement.

4 Investment in new technology networks

As technology progresses and today's telecoms networks become due for replacement, it is particularly important that regulation continues to encourage companies to invest efficiently. We described our approach to regulation of risky investments in a statement on 18 August 2005, which you can see on our website (see Related Items to the right of this page). However, it may be a particular challenge to make sure that companies aren't discouraged from investing in 'access networks', which are the parts of the network that connect directly to customers' houses or business premises. We are starting a review of access to look specifically at this issue.

5 Achieving equality of access in fixed telecoms

The final question was whether it was right to ask if BT should be split up in some way, or to increase other organisations' ability to compete with it. Our preferred approach involves BT giving its competitors the same access to the 'bottleneck' parts of its network as it gives to itself, and BT making some organisational changes. We discuss in the next section how we expect BT to achieve this.

Undertakings given to us by BT

In June 2005, BT offered us a set of undertakings (or formal, legally binding promises) instead of us referring them to the Competition Commission under the Enterprise Act 2002. The Competition Commission can look at a range of options, which could include splitting up BT.

On 30 June 2005, we issued a consultation document (see Related Items to the right of this page) to consider whether we should accept these undertakings. We explained why we believed that when BT gave access to parts of its network, it was still able to give its own operations an advantage over those of its competitors. We also explained why we suspected that some of the things that BT had done in the past may have prevented competition.

We received around 40 responses to our June consultation on these undertakings, and you can see these responses on our website (see Related Items to the right of this page). Most of these responses said that we should accept undertakings from BT instead of making a reference under the Enterprise Act. Having taken full account of the responses to the consultation, and having agreed certain changes to the undertakings with BT, we have decided to accept the undertakings rather than make a reference to the Competition Commission. We expect these undertakings to lead to equality of access. You can find the full text of the undertakings that we accepted from BT in annex A of the main statement on our website at: (see Related Items to the right of this page).

Many respondents said how important it would be for us to continue being fully involved with how well BT follows these undertakings. They also thought that we should say how we would measure the success of our regulatory approach. We agree, and we have set out our proposed approach in the final chapter of our full statement. In particular, we think it is important that we should measure whether BT is following its undertakings and, more widely, whether our overall regulatory approach is delivering the kinds of outcomes that businesses and consumers want.

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