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Overview

1.1 In November 2004, Ofcom published a consultation document as part of Phase 2 of the Strategic Review of Telecommunications. The consultation document set out Ofcom’s proposals for a future regulatory strategy. We have now received around 100 responses to this consultation from a wide range of industry stakeholders comprising operators, consumer groups and industry associations, regional interest groups and other interested parties.

1.2 Because of the number of responses and range of issues addressed, we have produced this summary to enable anyone interested in the Telecoms Review to access more easily the arguments put forward by others in the debate.

With some exceptions, there is broad agreement amongst the industry on the seven regulatory principles set out by Ofcom

1.3 The majority of telecoms operators voiced broad agreement with the seven regulatory principles set out by Ofcom. BT presented a number of modifications to these principles suggesting greater focus on deregulation, forbearance for emerging markets, consistency and transparency in regulation and a “bias towards investment”. Other operators, whilst broadly agreeing with the regulatory principles, argued for the need for a clear implementation roadmap for the key principle of ensuring equality of access. Most alternative network operators (altnets) and service providers also argue that a settlement needs to be backed up by strong enforcement and clear sanctions. Some local infrastructure operators, including NTL, Telewest and UK Broadband, however, argue that local access is not an enduring economic bottleneck, and that treating it in this way will harm incentives for alternative infrastructure investment.

Many consumer groups argue that the Telecoms Review is too industry-focused and insufficiently consumer-focused

1.4 A number of consumer groups, including Ofcom’s own Consumer Panel, argued that the review was too focused on the internal workings of the telecoms industry, and insufficiently focused on the issues of direct relevance to businesses and consumers. For example, they suggest that Ofcom hasn’t clearly explained why its preferred regulatory option would be best for consumers. Because of this, some consumer groups felt that Ofcom had missed an opportunity to address some of the issues, like provision of universal services that are of direct importance to many consumers. This view was supported by the response from the Communications Workers Union (CWU) and Connect, which argues that the key issue for consumers is not simply the availability of competition, but the empowerment of consumers to exercise informed choice in the marketplace.

Most respondents express a preference for Option 3 (Equality of Access)

1.5 A large majority of the respondents (90%), including BT, are in favour of Option 3. Some of them believe that Option 2 (Reference under the Enterprise Act) should be kept as an option of “last resort”. About half of those arguing in favour of Option 3 (in particular UKCTA and the largest altnets) stress the need for Ofcom to be ready and willing to refer the market to the Competition Commission should Real Equality of Access not be achieved. Others call for such a reference to be used only as an option of last resort and caution of its potential disruptive effects. BT signals a willingness to accept a revised version of Option 3, argues that there is no case for a reference under section 131 of the Enterprise Act and urges Ofcom to accelerate the timeframe for deregulation.

1.6 A few respondents (including Energis among the larger altnets) plead the case for an immediate referral of BT under section 131 of the Enterprise Act. Though views on the scope for deregulation differ, almost all respondents dismiss Option 1 (full deregulation).

Most of BT’s competitors urge caution in deregulation in fixed telecoms

1.7 BT urges Ofcom to consider deregulatory moves or at least market reviews in markets which it considers now to be competitive, such as the business voice market. Most altnets, however, argue strongly that premature deregulation will be damaging to the market – they do, however, recognise that deregulation should be an incentive for BT to deliver equality of access. In particular, they argue that a high standard of equality of access needs to be in place in upstream markets before deregulation should be contemplated downstream; including equivalence of input and behavioural change. Many mobile operators urge Ofcom to be more explicitly deregulatory in the mobile market in particular.

1.8 Amongst many consumer groups, associations and individuals, there is a concern about an early move towards deregulation. Many argue that Ofcom should make a clear distinction between regulation designed for fair competition and regulation aimed at consumer protection; and that there is no case for withdrawal of the latter.

Equality of Access

Most respondents agree about the need to enforce equivalence for bottleneck services

1.9 BT broadly accepts the principle of equivalence for enduring economic bottlenecks. However, BT emphasises the difference between equivalence for new bottleneck products which could be built in as these products are developed, and equivalence for legacy products which will be expensive and very time-consuming. Virtually all altnets agree that equivalence of outcomes has not delivered equality of access and therefore argue that only equivalence of inputs will be able to improve the current situation. A number of altnets and service providers argue that as long as BT cannot deliver true equivalence on all fronts, BT’s wholesale customers should be entitled to receive financial compensation. Some local infrastructure players (including the cable operators and UK Broadband), argue against the introduction of equivalence to many local access assets, aruging that it will stifle innovation.

A number of proposals are put forward to ensure behavioural and organisational changes by BT

1.10 Although BT challenges Ofcom’s allegations of its past malpractices, it puts forward a proposal to create a separate Access Services Division within BT to manage the local access network. BT proposes that the division will have its own incentive structure and that a new Equality of Access board will be created to oversee the delivery of all wholesale products in markets in which it has significant market power (SMP).

1.11 Other respondents had not had the opportunity to see BT’s proposals when they submitted their responses. Most altnets and service providers agree that a radical organisational and behavioural change is required of BT, and propose many structural and behavioural changes for BT. Some aspects of the proposals put forward by many altnets and service providers are in line with BT’s own proposals. However, typically they also recommend additional requirements such as, for instance, a system of independent audit, the appointment of independent board members, financial liability for non-compliance to a set of agreed KPIs, as well as operational and geographical separation of the new division. Energis is the only altnet to refute that organisational change could ever be sufficient to ensure fair behaviour from BT.

There is strong disagreement about the need for measures to support search and switching by consumers

1.12 Many consumer groups argued that this was one of the most critical issues for Ofcom’s review, and used the results of Ofcom’s research to highlight the need for measures to improve consumers’ ability to search and switch easily between telecoms providers. Though there is some disagreement about what Ofcom’s role should be, there is clear consensus among these respondents that there needs to be better access by consumers to clear information about the market, and simplified processes for switching between suppliers. Many consumer groups are do not believe that self-regulatory mechanisms could be sufficient to achieve this.

1.13 Though some telecoms providers recognise that there is a problem among some groups of consumers, the majority are in favour of leaving it to the market to provide information about products and services. Mobile operators argue in particular that Ofcom’s research demonstrates that in mobile, there is no issue to address. Some altnets also believe that Ofcom needs to regulate to ensure that consumers can switch easily from one provider to another.

There is agreement in principle for a universal service fund at some point, but many consumer groups urge Ofcom has missed an opportunity to re-consider the scope of universal services

1.14 A large number of respondents agree in principle that when there is greater competition, it would be appropriate to set up a universal service fund. However, respondents differ about when this should be. BT and many consumer organisations welcome the idea and argue for its rapid implementation. Most altnets and service providers argue that it should only be set up once Equality of Access was in place, and competition had developed.

1.15 Many consumer organisations were disappointed that Ofcom’s Telecoms Review and Universal Service Review did not give more consideration to extending the scope of universal services. Some, including Ofcom’s Advisory Committee on Older and Disabled People argued that universal services should be extended to reception equipment as well as services, and that recipients of universal services should have a choice of supplier. A wide variety of respondents, including many consumer organisations, business organisations such as the Communications Management Association and the Federation of Small Businesses and others argued that broadband should be included as a universal service.

Many also express strong views on geographic-specific regulation, investment, competition in next generation core and access networks, and many other issues

1.16 There was strong disagreement about the need for different regulatory approaches in different geographical areas. BT is broadly in favour. Many altnets were very concerned about this issue, arguing for example that it would be complex to administer, and could create “black holes” where there was no competition. Many respondents from the nations and regions, while welcoming the recognition that there were different competitive problems in different areas, were very concerned about regulation exacerbating a digital divide.

1.17 While BT urges Ofcom to provide the right incentives for investment in its 21 st Century Network (21CN), many altnets express significant concerns about the current plan for 21CN and, in particular, the lack of visibility they have concerning BT’s plans. Many equipment manufacturers echo this; pointing out how important the access and interconnection arrangements to next generation networks will be for future competition.

1.18 Many business organisations, equipment manufacturers and broadband groups argue how important it is that next generation access networks are rapidly deployed. Many operators point out the scope for current copper and cable infrastructures to be further upgraded. Responses were split over whether Ofcom should forbear from regulating next generation access networks, with many altnets in particular arguing that this would not be appropriate.

1.19 The very wide range of responses we received covered an enormous diversity of issues, some of which we have not been able to capture in this summary. All the non-confidential responses to the Review are available at www.ofcom.org.uk/static/telecoms_review/condoc_phase2r.htm.

The full document is available below

• Summary of responses to Phase 2 consultation [pdf]
  Full print version

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