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| Oftel › Press Centre › Press Release Archive › 2000 | |
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| Oftel PROPOSALS TO PROMOTE COMPETITION IN LEASED LINES | |
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Ref: 66/00 Oftel has today made proposals to increase competition in, and so help reduce prices of, retail national leased lines. Oftel’s proposals for targeted regulation of BT’s wholesale leased lines are set out in a consultation document published today. Oftel’s consultation follows a review of competition in the market for national leased lines. Leased lines are permanently connected communications links that are used by business and other operators for services such as voice and data traffic and Internet access. Oftel found that competition was not effective in the retail market resulting in prices higher than they would be in a competitive market. Oftel proposes to tackle this by taking action at the wholesale level. Among the options put forward for consultation is targeted price control of the wholesale leased lines to be provided by BT. David Edmonds, Director General of Telecommunications said today: "Greater competition in the leased lines market will mean a better deal for UK consumers. "Oftel’s analysis shows that the main problem lies in the wholesale market. Our proposals are for regulation to address this. Subject to the consultation, I consider that targeted price regulation of a wholesale leased line service to be provided by BT is likely to be the most appropriate regulatory action. It will ensure that other operators can purchase wholesale leased lines at prices which will enable them to compete effectively. "Currently UK prices for leased lines are in line with average European prices but are much higher than those in the cheapest countries and in the US. "I believe that my proposals will significantly increase competition in the market and result in more competitive prices." This is the first of Oftel’s effective competition reviews that were set out in its strategy statement in January this year. The aim of the reviews is to establish if competition is effective in delivering benefits to consumers and, if not, what level of regulatory intervention is appropriate. Oftel’s consultation will run until mid November after which a statement with firm conclusions will be published. Note to editors 1. National leased lines: Effective competition review and policy options is available on the Oftel website at http://www.oftel.gov.uk/competition/nll0800.pdf. Hard copies are available to the media from the Press Office on 020 7634 8991 and to the public from the Research and Intelligence Unit on 020 7634 8761. 2. National leased lines are a telecoms service which offers permanently connected communications links between sites. They constitute a significant market of approximately £1.4 bn (1998/99). The retail service is purchased by many UK business consumers and leased lines are also purchased as a wholesale service to enable operators and service providers to offer other telecoms services, such as fixed link internet access. 3. The consultation document sets out Oftel’s consideration of the state of competition in both the relevant retail and wholesale markets for national leased lines. Oftel’s conclusions are that:
4. The consultation document sets out 3 possible options to remedy the lack of effective competition in wholesale terminating segments thereby promoting competition in retail leased lines. These are: (i) to encourage commercial negotiations between purchasers and BT. Such negotiations would be within the framework of the EC Interconnection Directive – 97/33/EC (ICD). This places obligations on BT and purchasers to negotiate the supply of appropriate services. It also requires BT’s prices for such services to be cost-oriented and the terms of supply to be non-discriminatory. Oftel has powers to intervene to resolve disputes; (ii) Oftel to take action on its own initiative rather than waiting for a dispute to arise. Under its powers under the ICD, Oftel would specify the services that BT must offer. Oftel proposes these would be wholesale terminating segments at all bandwidths and, as in (i), these would have to be provided on non-discriminatory terms and at cost-orientated prices; (iii) as in (ii) but in addition Oftel would set and control the prices of the wholesale terminating segments to be offered by BT. This would involve Oftel setting initial prices and then controlling prices for next 4 years by the means of an appropriate network charge control. 5. The consultation document explains that, on balance, Oftel considers that Option (iii) is likely to be the most appropriate regulatory action. 6. The consultation document also considers the options of imposing retail price controls on BT’s retail prices of leased lines. Two options are discussed: (iv) Binding controls on retail prices. However, Oftel believes that retail price controls would not constitute a proportionate response to the competition concerns identified. This is because, as explained above, Oftel has concluded that the reason for the lack of effective competition in retail leased lines is the lack of effective competition in the market for wholesale terminating segments. (v) Safeguard retail price caps. Oftel proposes that such safeguard caps are only likely to be appropriate for analogue retail leased lines since the competitive pressures created by its wholesale policy options are likely to stimulate sufficient retail competition to constrain retail prices for all other services.
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