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24|02|05

Introductory Remarks to Industry Seminar on Equality of Access
24 February 2005

Ed Richards, Senior Partner, Strategy & Market Developments, Ofcom

First of all I too would also like to commend the quality and quantity of the responses that we received to Phase 2 of our Review. As Stephen said, we received nearly a hundred responses.

About a third of them came from telecoms operators but we also received many from organisations representing businesses and consumers, from telecoms equipment manufacturers, from private individuals and companies. Many of them very thoughtful and detailed - more than enough to once again demonstrate the level of interest in this area and indeed to justify the profile and timescale we have adopted for the Telecommunications Strategic Review (TSR).

Everyone who sent us a response has been invited here today, as well as a number of others with a particular interest in the telecoms sector.

Our Review covers a range of issues in telecoms regulation:

• How different groups of consumers are able to engage with telecoms markets.
• How universal services should evolve.
• How to approach next generation broadband access.
• Where and when it would be appropriate to deregulate - and how that is related to change elsewhere, as Stephen suggested, effective upstream measures which might enable deregulation downstream.
• And, of course, the terms of access to BT's network, as the dominant provider in many markets.

The Review considers all of these together because it needs to address how telecoms regulation in the round can best serve the interests of consumers - it needs to draw together the threads that connect one part of the industry to another and to reflect the critical themes which are significant beyond any single economic market.

Now that we have a full set of responses to the second phase of our consultation, we'll be holding a number of seminars to move the debate forwards in some of these areas. These will include:

• What our approach to consumer information should be in light of the importance of timely and reliable information to effective competition in telecoms markets.
• They will include a session on the scope for deregulation once equality of access is in place upstream and how we might apply different remedies in different geographic areas.
• And what our approach should be towards next generation access networks - how we can facilitate both investment and competition.

But today's seminar is all about one part of the overall package: the terms of access to BT's network.

We want to concentrate on how our preferred option, Real Equality of Access, can be made to work.

But we shouldn't lose sight of the fact that this is all about delivering a policy framework that is in the consumer interest. The reason that Real Equality of Access is important is that it could underpin effective competition and that is the best way to serve the consumer interest in the first instance.

We need to keep this upper most in our minds during the course of today when much of the discussion might seem like an arcane debate between people who care about something a very long way removed from the sorts of things that consumers live and breathe.

It's worth reflecting briefly upon where we are in the TSR journey. We're in the middle of a long and complex process, more complex than we imagined when we began.

It is taking longer than we thought. And although it's important for everyone that we arrive at a clear and stable regulatory approach as quickly as possible, it's also important that we get it absolutely right. And 'getting it right' in telecoms regulation involves sorting out as many of the details as possible. So even though we all want this process to finish as quickly as possible, we think it's worth taking the time to work out the details.

We have come a long way already:

• We have a better understanding of what a well functioning telecoms market would deliver. Businesses and consumers want more than just reliable services at low prices; they want fast innovation, a good choice of services, and the means to be able to make good choices between different suppliers.
• We have, judging from the responses, a clear consensus that the current regulatory approach is unsustainable. That the huge mesh of complex regulation that we have today isn't effective - for competitors, for BT or, therefore, for consumers.
• And we’ve worked with the industry to define, in some detail, general concepts such as equivalence; different ways they could be applied, and how they might work in practice.

Much of the debate has been about how other telecoms companies access BT's network. We asked about this in our Phase 2 responses give us chapter and verse on whether people think Equality of Access might be made to work, and if so how.

All of these responses are important, and we are spending a lot of time understanding exactly what people have set out. But in a sense BT's response was particularly significant. That’s because we posed BT a unique question in Phase 2: we asked BT’s management to provide prompt and clear proposals for the organisational and behavioural changes within BT that we considered necessary for Equality of Access to work.

And I think we should recognise that in this area we have received a constructive response by BT, which sets out a number of steps which could go some way to resolving this issue. To our knowledge, BT's proposed Access Services Division is the first time this kind of structural regulatory solution has been put on the table by an incumbent in a developed economy.

We know that the devil is in the detail. We need to spend time reflecting on BT's response and working with BT to understand that detail. Until then, we make no conclusions.

Similarly, we need to understand everyone else's position, and exactly what the operators who connect to BT's network are going to need, if they’re going to have confidence that Real Equality of Access works.

So how do we get from where we are now, to a regulatory settlement at the end of this Review?

As we've said all along, we would prefer a settlement for which there is some significant consensus within the industry - we will never have everyone in total agreement and we don't expect to achieve that - but we need a consensus that a set of measures exists, that can be made to work, and that will deliver Real Equality of Access. We’re genuinely optimistic that this can be achieved and I make no bones about that - we have covered a lot of ground, we do have richer collective understanding of the issues and we have a shared desire to achieve a better outcome than the status quo.

So we're considerably nearer than we were six months ago. But you have significant concerns and we also have significant concerns. We know that.

But as Stephen set out, from here on in the stakes are going to get higher, as are the risks that reasonable expectations on different sides may be disappointed. There remains a real danger of collective failure in this process.

So how do we move forward effectively?

We need to understand what really matters to each of you. What are your absolute priorities? What in contrast, is less essential? We need to begin to have real definition in your respective positions, definition of substance and meaning. Only then can we judge whether a consensus is achievable and what it might look like.

Today’s seminar is an important step in that process. We hope that it will be a constructive debate - it needs to be a constructive debate. The key questions we would like to make most progress on begin with product level equivalence:

• Should BT devote its resources into making current wholesale products fit-for-purpose, putting in place quick-fix improvements while developing equivalence of input for next generation products?
• Or should it devote its resources into speeding up the introduction of equivalence of input even if, realistically, the task is going to take some time?

And secondly on behaviour and governance:

• What’s the right scope for the Access Services Division? What products should be in it, and how can its governance arrangements give Altnets and Service Providers the confidence they need for fair competition to flourish?

Many of the responses to Phase 2 stressed the need for a settlement to be enforceable; for it to be backed up by clear sanctions that would make it more painful for anyone to break the settlement than to comply.

It’s obviously critical that we come up with arrangements that give all players the confidence and certainty they need to compete, and to invest. Our strong preference is to proceed by way of a set of arrangements that are broadly agreed by the industry, backed up, of course, by regulatory measures taken by Ofcom.

Well our starting point must be that at present we remain consulting on three options: full deregulation; a reference under the Enterprise Act; and our preferred option, Real Equality of Access. We're still trying to see if Real Equality of Access can be made to work. Because if it can't, we have made clear on a number of occasions, this will lead us to the conclusion that a combination of features of the market is preventing or distorting competition, and we will consider opening an investigation prior to making a reference to the Competition Commission under the Enterprise Act. That most likely means years of intrusive investigation and detailed process with associated costs and burdens for everyone.

Obviously, there will be challenges to face in implementing and enforcing our preferred option. But for now, we need to concentrate on whether the option itself is viable and will garner the required support. In Phase 3, we will, of course, need to consult on the proposed approach to implementation.

The challenge now is to make progress. So I want to set out briefly what we see as the process and timescales up to publication of our Phase 3 statement.

First of all, through the spring we will be publishing consultations or statements on a number of areas that follow on from the Telecoms Review; for example:

• On BT's regulatory cost of capital
• We published in January, the consultation closes in March and we will publish a statement in April.
• On Network Charge Controls and the valuation of BTs copper local loop
• We will publish statements on 16 March followed by a 10 week consultation and a statement in June or July
• On the principles of access to next generation networks
• We will publish a statement in April

We hope these will provide an increasingly certain background against which we can discuss how Equality of Access could be achieved.

How do we see that discussion taking place? The first thing we need to do, today and through other seminars, is to allow people to respond to other peoples' positions.

Then, we need some constructive dialogue, but a dialogue with a deadline, a line in the sand.

We believe that we need to have established whether or not Real Equality of Access is a sustainable approach by the end of June. We would then expect to publish our Phase 3 statement in the summer.

If in June we concluded that Real Equality of Access was in fact not viable, we envisage that we would at that stage commence an internal Enterprise Act investigation. Should that investigation recommend a reference to the Competition Commission, we expect the timetable for such a reference to be towards the end of the year.

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