The title of this forum is “Regulating for competition and convergence”.

A legitimate question is should the regulator actually be for either competition or convergence.

In the case of competition I, like my predecessors, am generally in favour of it.

Crucially, not as an end in itself, but because the mechanism of competition delivers much better services to customers than either a monopolist, or a regulator, deciding what it is that – they think – customers want.

Again, I am for convergence, but not for its own sake. Convergence has the possibility of delivering new, cost effective, telecommunications services as well as existing services cheaper and better. To the extent that it fulfils that promise, I am for it.

I see the role of the regulator in relation to both competition and convergence as being, at an absolute minimum, to make sure that regulation does not get in the way of competition and convergence delivering better services to customers. Even better, regulation should have an objective of positively encouraging competition and convergence where this will deliver better services for customers.

Setting out these objectives is easy. The hard part is translating these thoughts into real actions that produce real results for consumers.

So what should a regulator do in the context of the UK market-place?

I want to concentrate to-day on a particular example of where action could increase both competition and convergence. That is using the existing local loop as the means of delivering much higher bandwidth services. There seems to be general agreement that the existing local loop has the technical potential to deliver new services – high speed Internet access, video on demand, and other services. The question I face is how to get that potential released in the UK.

Oftel will shortly be publishing a consultation document that sets out our preliminary thoughts on these issues.

You will find, in classic Oftel fashion, a large number of difficult and detailed questions, to which we are seeking answers. You will also find that the UK, along with other member states, will be influenced in its actions by the need for decisions across European boundaries.

I do not want to pre-empt the detailed questions here. In any case, speeches are ill-suited to dealing with the kind of detail that Oftel goes into in its consultation documents.

However, I do want to bring out a more general issue that is touched on in that document. It is an issue which has great importance in the general approach taken to both convergence and competition. It is especially important in relation to the development of European policy, which is becoming increasingly important for us in the UK.

To keep life simple, I want to proceed by way of a typical example. One of the propositions that has been put forward in Europe is that Member States should, as a matter of regulation, make operators with significant market power "rent" their copper loops to new entrants at cost based prices.

In certain respects this is quite a drastic proposal. The owner of an asset (the loop) is being required to sell the exclusive use of that asset to a competitor. (This is the point where the lawyers get out their paying in books!)

The hypothesis is that, at least in the short term, control of all the services passing over that loop transfers to a competitor. In effect, the transfer of the loop is being used as a means to transfer a monopoly in the provision of services over that loop.

This can be seen as giving the customer rights to choose which service providers they want to have access to their local loop – the loop that connects them to the wider telecommunications world. This is the loop that, what ever else happens, they end up paying for. As customers are generally a better judge of what they want, giving them the ability to directly exercise this choice is only reasonable.

But there are, of course, many other considerations.

Would the ability of customers to make direct choices (and, therefore, allow competition to operate) in this market frustrate the emergence of competition in the provision of the local loop itself? And, would this possibly make provision of alternative forms of local infrastructure more difficult? There are also questions of the technical viability of this approach. Would interference between local loops in the same access network be so serious that the quality of service degrades to unacceptable levels?

But lying behind all these detailed (and difficult) questions is a rather fundamental question of approach. Should I, as a regulator, see this as a consumer rights issues – what should they be allowed to do with “their” loop? Or is it a producer rights issue – what rights does the owner of an asset have to frustrate consumer choice?

This dichotomy of approach is clearly not absolute. In the end, customers are reliant on someone making investment in assets. If the consumer approach is too harsh, choice becomes non existent because no one will provide the capital and effort required.

Similarly, the producers, especially where there is very free competition, cannot act independently of the consumer. In this case consumer choice is effective without any special rules needing to be applied.

In reality, of course, neither the consumer nor the producer get their absolute rights.

There are some general cases where the rights of the owner can be taken away if the owner “misbehaves” in some way. For example, in competition law terms, if the owner “abuses a dominant position” – whatever precisely that might mean – action can be taken. In freely competitive markets, the consumer still does not get everything that is possible.

Unfortunately the world of convergence does not, and may not ever, conform to the very free competitive model. Instead, it is characterised by old companies with significant market power, or even dominance. Companies – for example BT – may retain, high market shares or, where totally new markets are being created, there is very high probability that there will always be a small number of suppliers. My guess is that the provision of mobile networks and conditional access systems is always likely to be done by a small number of players.

In these circumstances the different approaches are likely to produce different results. Coming at the problems from the customer end of the problem produces a legitimisation of intervention to keep markets as open as possible. This is true even when the producers are not dominant (at least individually) or, even if they are, have not abused that position by doing things to their customers that they would not do in a fully competitive market.

Coming at the problem from the producers end, intervention is only legitimate where producers have at least a very strong market position, if not dominance, and they have abused that position, and the intervention deals only with that particular abuse.

To put this in perspective let me try to give an example of what is at stake.

In the near future high speed Internet access is likely to be available in various guises on a number of different networks – BT’s POTs network with suitable clever electronics, fixed radio access, the Cable TV network. Looking at it from the consumer’s perspective it seems strange to allow the controllers of those networks artificially to limit the customer’s access to Internet service providers using these networks. A regulatory requirement to allow the customer to access all Internet service providers would ensure that that Internet service market was as competitive as possible.

From the network providers perspective, they have made the investment needed to provide the high speed access capability. That investment is mainly new, and none of them will have an obviously superior market position than the others. (Even BT is likely to be a minor player in this example.) And they will be supplying a new and innovative Internet access service against at least some competition from the more traditional, and slower, services.

Why should they be required to provide this new infrastructure to benefit their competitors in the Internet service business? Especially if there is no indication that they are “overcharging” customers for their Internet services? In the old world of plain old telephone services (POTS) the different approaches produced similar results. BT was dominant. The state needed to regulate to give customers an even break. But in this world of convergence the different approaches produce different policy prescriptions.

Which one is the right one?

Quite frankly, as of to-day, I do not believe that anyone can predict the answer. But I do know that to create a coherent, and stable, regulatory framework for convergence the question needs to be answered. It needs an answer here in the UK and, as important, in Europe. It can then inform the regulation needed. As the regulator, I want to be for both the convergence and competition. I want to see delivered maximum benefits for customers. And, very importantly, I want a clear framework, for UK industry – so that we can build on the existing skills and experiences in this area that put us ahead of our competitors.

This is a complex issue and the debate has only really just begun, especially in Europe. Oftel has started to try to develop the framework within which sensible, and coherent, answers can be developed. Our thinking needs development. Help from those knowledgeable in the industry is essential.

I do believe that the underlying principle that regulators should work towards is freedom – freedom to operate in the open market place, freedom to set prices that are fair, and freedom for the consumer to access networks. I would like to see competition based on service quality and choice.

I have a compelling duty to protect the consumer – but this is complemented by a compelling duty to promote the telecommunications industry in the UK. This can, I am sure, best be done by working in a business like way to produce worthwhile solutions. Over the next twelve months, as all sides discuss our response to the EC review, my personal priority is to seek a synthesis of view.

It is possible. And, if we succeed, both consumer and the industry as a whole will certainly be better off.

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