Contents

1. Agenda

2. List of attendees

3. Minutes

• Introduction from Chair, Peter Walker, Oftel.
• Implementing Oftel's strategy- John Russell, Oftel.
• The future of the broadband market for ISPs, from a small ISPs' perspective. Tim Snape, ISPA Council.
• How does the UK Broadband Market Compare with Elsewhere? - Oftel's international benchmarking study, Sarah Evans, Oftel.
• Service provider switching, Martin Hill, Oftel.

Introduction from Chair, Peter Walker, Oftel. Click here for slides.

Peter introduced the day's topic of discussion - competition in the broadband market and getting the framework for regulation right.

Peter welcomed attendees to the Forum and introduced the session's external speaker, Tim Snape, ISPA Council member.

Peter explained that the Forum would also be hearing from Oftel representatives who would be explaining Oftel's broadband strategy, some of the key decisions that we have made with regard to broadband and the results of Oftel's latest international benchmarking study.

Before kicking-off with the day's advertised agenda, Peter made the following announcements:

Market review

As part of its programme to implement the new EU framework, Oftel would be conducting a review of wholesale Internet call termination services. This refers to wholesale services supplied to ISPs for dial-up Internet access calls, for example SurfPort24.

Oftel was now inviting ISPs and operators to contribute to the review by providing information about this market. A letter and questionnaire had been sent to ISPs via the ISPA newsletter and would also be available from the EU market review section of Oftel's web site. Oftel would be very grateful for responses by 26 July 02 and hoped ISPs would be able to contribute to this important work.

Please contact Justin Moore for any queries.

Consumer guide

Oftel would be publishing a consumer guide called 'How to access the Internet at home' at the beginning of August. The purpose of the leaflet was to give guidance to consumers connecting to the Internet to encourage a better understanding of what products were available in the market and to enable consumers to take advantage of market opportunities resulting from competition.

Oftel was considering a number of distribution channels and would welcome further ideas/offers from industry about how best to get the guidance out to consumers.

Please contact Lucy Rhodes for details.

Service provider switching (ADSL)

Peter explained that at the end of the Forum, Martin Hill would be briefly running through the process of customers switching between ADSL Service Providers.

Housekeeping

Peter stated that the meeting would be held under Chatham House rules. A note of the meeting would be available on the web site.

Attendees were asked to think about topics for future Forum events. Suggestions should be e-mailed to lucy.rhodes@oftel.gov.uk

Implementing Oftel's strategy- John Russell, Oftel. Click here for slides.

John gave a brief outline of his presentation on implementing Oftel's broadband strategy. The presentation would be covering an explanation of Oftel's strategy and some key recent decisions, and an overview of developments in the broadband market.

John talked through Oftel's goal of the getting the best deal for the UK consumer by promoting network and service competition in broadband. John explained that, though Oftel's approach to regulation was 'technology-neutral', much of Oftel's broadband work had concentrated on opening up bottlenecks in the fixed market.

John briefly ran through Oftel's recent key decisions:

• 2 cases regarding BT's ADSL products - the first, a complaint that BT was unfairly cross-subsidising its retail product and the second, a complaint that BT was involved in predatory pricing of its wholesale products. In both cases, John explained that Oftel did not find evidence of anti-competitive behaviour by BT. More details are available from Oftel's Competition Bulletin, issue 24.
• Oftel published a statement making clear how BT can market its services without acting anti-competitively. Oftel was closely monitoring BT's compliance and had discussed mystery shopping exercises with ISPA and ISPs. John empahised that this was very much a probationary period for BT and that the process would be reviewed by Oftel in 6 months.
• ATM interconnection - On 21 June Oftel directed BT to provide ATM interconnection to OLOS, enabling them to offer DSL services over BT infrastructure. Prices had been set at retail minus, so as not to disincentivise infrastructure competition.
• LLU - Co-mingling orders were now being processed which were cheaper than earlier ones. LLU was said to bemaking inroads - orders were starting to increase with 600+ loops, new entrants and expansion by current LLU operators.
• PPCs - Oftel had found that BT had market power in the retail market for high and low bandwidth leased lines and terminating segments (the trunk segments were found to be prospectively competitive). Oftel had split its work on requests for Determinations from OLOS into 2 phases. Oftel's Phase 1 direction (14 June) required BT to make a number of improvements to its wholesale leased lines products. Phase 2 would resolve the more complex issues eg pricing and SLAs.

John ran through some developments in the market, including availability of various broadband technologies in the UK and prices compared to other countries, as would be covered in more detail by Sarah Evan's presentation. John presented a chart showing growth in take-up of broadband services with a total subscriber figure of 709,000 (cable and ADSL).

In conclusion, John said that the picture of broadband in the UK was currently a good one - prices for broadband were down and compared well with elsewhere. There were around 20,000 new broadband subscribers each week, both network and service provider competition, and further interest in LLU and emerging technologies such as satellite and fixed wireless.

Questions

Can Oftel explain the pricing method used for PPCs?

• Oftel is working from BT's cost model which is based on current cost accounting, fully allocated costs. This has been accepted as a proxy for Long Run Incremental Costs (LRIC) plus Equal Proportionate Mark Up (EPMU).

Is any work being done within Government to look at and evaluate demand for broadband services?

• The Office of the e-Envoy (OeE) is looking at and developing methods to aggregate demand for broadband and stimulate take-up. This includes the work of the national UK online campaign. The DTI has further plans to encourage rollout at a local and regional level.

Are regulatory authorities in other countries carrying out similar work to Oftel on PPCs?

• Other countries have an interest in PPCs. Some are looking to Oftel for guidance.

Have many circuits actually been migrated?

• Yes. Over 40,000.

The future of the broadband market for ISPs, from a small ISPs' perspective. Tim Snape, ISPA Council. Click here for slides.

Tim said that he would be giving a constructive, bird's eye view of the broadband market.

Tim said that the Internet industry was there for the consumer, not to serve itself. As an SME, Tim said he shared Oftel's strategy for getting the best deal for the consumer through generating competition.

Tim explained that SMEs do not have the same financial cushions and resources as the big players and must move fast to seize business opportunities. However the customer was king and should be the basis for all business decisions.

Tim said that he saw ISPA's role as a trade association, as being similar to Oftel's role - to promote competition and to deliver quality services to the consumer.Tim added that there needed to be active will from the regulator to involve industry in its work.

Tim suggested that EU regulation (eg concerning data protection and security) had created a tidal wave of regulatory compliance which was burdensome for the SME.

ISPA were said to be commissioning a study across Europe on ADSL.

Tim said that consumers wanted good support and service over speed. The challenge facing service providers was to deliver services that people actually want and to reach groups of people, such as the 'silver surfers' with relevant applications. Tim had set up an 'e-champion scheme' where customers were provided with services and supported at a local level. Tim predicted that there would be killer applications for broadband in the future.

However Tim argued that mistakes, including breaches of competition, had been made by local, regional, central and European government. Government procurement of technology was one area Tim highlighted as needing reform.

Notwithstanding these mistakes, Tim supported Government targets and priorities, but criticised its approach. Tim called for more passion from those involved in enabling the Internet to grow.

Questions

As a small service provider, how do you deal with all the different components of your service that can go wrong, in particular those bits of the network which you have no control over? How do you answer your customer?

• As a reseller of BT it is difficult to communicate reasons for (eg) network failure, due to the contractual relationships involved (ie the customer does not have a relationship with BT). Communication is key.

Are the police interested and capable enough to deal with Internet crime?

• Yes. But they are under-resourced and criminals are becoming more technically able. The Internet Crime Forum and Internet Watch Foundation are working with the police.

Oftel responded to Tim's comments on the need for Oftel to work with industry, and extended full cooperation to ISPA and its work.

How does the UK Broadband Market Compare with Elsewhere? - Oftel's international benchmarking study, Sarah Evans, Oftel. Click here for slides.

Sarah explained that she would be giving an overview of the UK's broadband market, including the size and structure of the market and price comparisons.

Sarah said that there were now almost three quarters of a million broadband subscribers in the UK. Prices for DSL had fallen by 40% since the end of 2001 and prices for cable were also low.

Sarah explained that Oftel carries out international benchmarking studies to put the numbers into context and to track how the UK compares to elsewhere. The results provide one way of assessing whether Oftel is meeting its goal of 'the best deal for the consumer' and will also feed into Oftel's forthcoming market reviews. They also provided a means of measuring whether government targets have been met.

Sarah said that it was important to bear in mind other aspects of the market as well as just the snapshot of prices - as was the case in the most recent report published June 2002.

A chart showing the size and structure of the UK broadband market compared to France, Germany and Sweden showed that subscriber figures were low everywhere, but particularly so in the UK. However the UK benefited from greater service provider and infrastructure competition than France and Germany. Sweden had significant competition from DSL, cable and also fibre to the kerb.

Sarah suggested that the late start date of DSL in the UK compared to elsewhere was a key reason why the UK is behind in terms of take up as the patterns are the same.

Retail prices as at April 2002, taking into account retail announcements following the drop in price for BT's wholesale products, showed the UK compared well and had some of the lowest cable modem and DSL prices. A second chart showed that UK DSL prices were high before this period, but where now well in line with elsewhere.

International market research carried out by Oftel showed that UK consumers were very positive about broadband, with almost all broadband customers questioned saying the service was better than expected.

In summary, Sarah concluded that, though still behind other countries, UK subscriber figures were increasing. In addition, the UK market was more competitive in terms of service providers and infrastructure than other countries. Prices were coming down with UK prices in line with elsewhere and consumers were happy with the service they received.

Questions

How does Oftel define broadband?

• Oftel generally says that the speed should be at least 128 kbps, however most broadband services looked at generally offer speeds of around 500 kbps.

Why do Oftel's benchmarking studies exclude comparisons with South East Asia and Australasia?

• Oftel has chosen what it believes to be some of the most relevant comparators in terms of leading economies who are the UK's closest competitors, plus Sweden, which is often considered a leader in telecommunications.
• The resources required for detailed comparisons limit the ability to include a wide range of countries.

Does the benchmarking take account of setup costs?

• Yes - the data includes some proportion of the setup costs but is dominated by the monthly rental.

Has Oftel looked at wholesale prices internationally?

• Yes, there are detailed comparisons in the most recent report for products in France and Germany. Oftel found that when looking at wholesale products internationally, it was difficult to compare like with like and information about prices was often not publicly available.
• France was easier as the products were more comparable. Oftel found that UK prices compared well with France even if current discussions in France regarding price reductions lead to action.
• Comparisons with Germany were harder to conclude since the products were less comparable.
• Oftel has carried out LLU benchmarking work and the European regulators group is looking to develop further LLU comparisons.

Does Oftel have plans to look at consumers' satisfaction with quality of service as well as speed?

• The international market research carried out for Oftel earlier in the year did cover elements of satisfaction. Satisfaction in the UK among Internet users was higher than average for all the categories covered, including statisfaction with services over all, reliability and value for money. Oftel is considering how best to use the results of the study.

Why is the UK so far behind in terms of take-up?

Suggestions from the speaker and the floor included:

• Time of launch
• Wide availability of flat rate narrowband access and previous price difference between this and broadband (though price difference has now narrowed)

Is Oftel monitoring the take-up of other broadband technologies?

• Oftel is currently looking to find out more about the availability of other technologies, in particular satellite and fixed wireless access, in the UK and elsewhere.
• (Reference was also made to the growing costs of cable access in the US and the numbers subscribing to satellite services (c. 800,000))

Service provider switching, Martin Hill, Oftel. Click here for slides.

Martin gave a brief presentation of BT's migration process, used to switch ADSL customers from one Service Provider to another. Martin explained that consumers need to be able to change service provider for competition to work effectively.

Martin asked ISPs present whether they had any concerns about the process.

Questions

Does the system enable the provision of static IP addresses?

• No.

ISPA has set industry guidelines for domain name transfer, stating that, similar to the migration process mentioned here, transfer must be carried out within 5 days.

• Codes of practice and industry guidelines will gain greater significance with the passing of the Communications Act.

Open discussion

Switching ISP is one thing, but what is Oftel's position on providing information to facilitate choice?

• Oftel has published CPIs (comparative performance indicators) for telephony services, however Oftel has experienced difficulties with information and funding. There is a lot of quality information available to the public in magazines and online. Oftel will be publishing a consumer leaflet in August this year that aims to enable people to take advantage of competition and choice (see above). Information and practical advice is also available from www.telecomsadvice.org.uk

There are only 3 key providers of broadband infrastructure in the UK. Is this of concern to Oftel?

• Where there are concerns, Oftel measures competition and monitors the market to see whether concentration or market power leads to possible abuse.
• However the market is still young and is growing fast. As the market matures and subscriber numbers rise, the possibility of undesirable behaviour may be greater.