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24|02|05

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

Stephen Carter, Chief Executive, Ofcom

Our Phase 2 of the Strategic Review closed on 3 February, and we have had about 100 responses, pretty much the same number as we had for Phase 1. The key question for everyone is where to next and how do we get there?

The purpose of today's meeting is to talk about the practicalities and the implementation of our preferred option, which still remains Option 3, true Equality of Access. Many parties have in their submissions raised a number of interesting and detailed questions around this option, and indeed we have had a substantive response from BT.

It would not be unfair to characterise BT's response as a response of two halves. One half being perhaps an understandable and legally justifiable, denial and rejection of our analysis, and the other half being a series of positive and potentially productive proposals. The Access Services Division structural proposal, the recognition of the existence of enduring economic bottlenecks, a shared commitment to a successful unbundling of the local loop, both economically and in process terms, and an acceptance of the need to improve margins and processes particularly in WLR and LLU, are all welcome commitments.

We will be working with BT and others between now and the end of June to deliver a series of binding undertakings and detail that will seek to stress-test the public commitments that have been made to equivalence and to the prospect of fair and balanced competition. Simultaneously however, there were some decisions made by BT which could be interpreted as manipulating downstream prices either to undermine investment or potentially, competition. In my own view the geographical differentiation of pricing for IP Stream - though not necessarily its timing - was an inevitability. Not least because the current regulatory regime, being retail minus, allows the DataStream to the LLU margin to be something of a moveable feast. The commitment to no further significant price changes in the next 12 months, made by BT on 3rd February, we welcome and will be monitoring its application.

Between then and now we will be conducting the second Wholesale Broadband Access market review.  We have already started the preparatory work for this critical review and the first formal consultation will be in May.  The review will look at the implications of different regulatory approaches in different geographic regions, and ultimately a set of remedies designed to promote effective and sustainable competition in LLU by scale players, possibly including price/margin structures or other undertakings.  Also in the next few months we will be tackling other barriers to the commercial development of LLU including migration processes and prices, backhaul prices and care packages.

Critically important as LLU is for sustainable competition in broadband, it is only one aspect of making real Equality of Access work. In the shorter term for many operators, and ultimately for the customers, issues around voice and leased lines and the design of the 21st Century Network are of equal, if not more, importance.

Our goal has always been to deliver real Equality of Access to the enduring economic bottlenecks so the playing field upstream becomes a level one, thereby creating an opportunity for real deregulation in the downstream market.

The months of March, April and May will all be about the detail of implementation. We need this group, and others therefore to tell us in detail what the real practical, commercial and consumer priorities are. This can not be an ever-expanding shopping list or wish list. That is simply unworkable and is not the role of the sectoral regulator.

If Option 3 does not become viable it will be a source of collective failure. Not the regulator's alone, not BT's alone, not the industry's alone, but a failure nevertheless. We would need therefore to find another solution because the need for infrastructure investment, effective and sustainable competition providing products and services at competitive prices for customers of all shapes and sizes is never going to go away. We would therefore at that stage commence the internal work needed for an Enterprise Act investigation.

Ironically for everyone involved in this process, including ourselves, the closer we all get to the prospect of true Equality of Access the higher the stakes, the greater the risks of reasonable expectations being dashed, if it fails to materialise; and equally the greater the need for the industry as a whole to accept that a new settlement requires a new attitude from all parties, not just the incumbent.

So from now to the end of May what do we ask?

From BT we need the detail of how the relevant parts of Option 3 could be implemented through a series of voluntary but binding undertakings which will be co-ordinated with the regulatory and deregulatory measures that we will make in the light of real results in delivery of equality of access. These undertakings need to be durable, enforceable and measurable.

Short term from BT we also need to see the on the ground performance improvements promised by Paul Reynolds in his public statements on 3rd February. Including, but not precluding, rapid progress on right first time provision, comparative care standards, speedy progress in backhaul circuit provision, and zero evidence of on the ground obstruction behaviour at operational level and a real margin and fit for purpose WLR product.

From the rest of the industry, we ask for workable detail around the important priority needs. Not an ever expanding shopping list of desirable business advantages.

From Ofcom, we will continue to engage in broad and deep consultation.

We will use the resources we have to complete the analysis and work to a conclusion by June 2005.

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