Presentation by Anne Lambert, Director of Operations

Wednesday 9 May 2001

  Introduction

Today I will talk about the role of Oftel - why we exist and what we are trying to do i.e. our regulatory strategy. Then look at where we are and what we are doing in a number of

i) fixed narrowband Internet access world,
ii) fixed broadband – including local loop unbundling,
iii) BT price controls, and
iv) the mobile market.  

Role and purpose of Oftel

Why do we need a telecoms regulator? Three main reasons: presence of former monopolies so need to actively promote competition; characteristics of telecoms networks with high barriers to entry and strong incentives to deny competitors access to consumers . Third, consumer protection – telecomms essential to social and economic inclusion. Basic framework is set at EU level – new one under negotiation now.

Oftel’s strategy for regulation. Competition will deliver choices for consumers. Oftel focuses on consumer. Regulation adjusted to extent of competition – more competition the lighter regulation. But firm regulation where needed to promote and maintain competition. Regular reviews to ensure regulation stays appropriate. Neither under nor over regulation.

Regulation at a time of financial uncertainty? Our approach is that we regulate according to the extent of competition and the competition problem (i.e. lack of it) we are trying to solve. Once Oftel has made its assessment of the extent of competition, if we decide to regulate then we seek the most proportionate measure(s). Benefits should exceed the costs and at this stage we take account of possible effects of regulation on investment and innovation.  

Narrowband Internet access

Fixed narrowband: Still significant. Oftel figures show that - c.40 per cent of total UK telecomms turnover of £12.6 bn in 99/00 is from fixed telephony and a further 20 per cent from Internet and cable. So narrowband still very significant for the consumer.

Oftel taken measures to ensure competition in Internet access. FRIACO – introduces competition in unmetered access. Potentially very important for consumer use of Internet. Oftel acted before any other EU regulator.    

Broadband services

Similar approach: we want competition in both delivery routes and providers of services over them. First, the residential/SME sector. Main thing to say is that early days. Latest forecasts e.g. Jupiter only 14 per cent of households in EU using broadband by 2005. UK started later than some e.g. US but signs of progress.

Three main routes: cable modems, BT's wholesale DSL service and LLU. Latest figures suggest about 100,000 end users: 40,000 cable modems provided by ntl and Telewest and 55,000 end users of BT's wholesale DSL provided by large number of different service providers. And LLU – first commercial i.e. paying user last week.

The first commercial i.e. non-trial LLU facilities were handed over, and unbundled loops provided and operating, in April 2001; nine distant location facilities now completed and handed over.

A further 41 confirmed orders for distant location sites are now being provisioned and the first three physical co-location rooms are also being constructed; more orders are expected over coming months. Details of sites where orders are confirmed are posted on Oftel’s website (www.oftel.gov.uk/publications/local_loop/llufacts/llufacts0501.htm).

    From May 2001, the ordering process is "business as usual" which means that operators can order at any of BT's exchanges whenever they wish.

Not a trouble-free process. But wherever it has been tried, it has proved to be complex in regulatory, commercial and technological terms. UK no exception. Difficulties have been well documented. But now believe following a lot of Oftel activity – and hard work by the industry – that the process is clear and is working. Demand much reduced. This was to be expected. Also adverse change in financial climate. But now got a firm and clear process which provides sound basis for current and future demand.

BT price controls

Price control of BT's PSTN services. First retail controls. General Oftel approach to price control: only where the operator is dominant and effective competition is not in prospect. Consumer protection measure. In 2/01 we extended existing retail controls for another year Review later this year to see if price controls are still needed. Introduced new wholesale charge controls (on interconnection charges) from Oct 2001 . Approach adjusted to reflect extent of competition – services classified as competitive, prospectively competitive and non-competitive. For latter controls range from RPI - 13 per cent to RPI – 7.5 per cent depending on variety of factors e.g. profitability, scope for cost reductions, future market growth, scope for efficiency, cost of capital etc.

Mobile

First, 2G. Currently reviewing existing regulation in line with our programme of "effective competition reviews" – mobile market generally and specifically on calls to mobile phones. Consultations only ended 4 May then comments on comment by 18 May. So we have not yet reached any conclusions. But some key principles:

Effective competition reviews: we look at consumer outcomes (best or near best deal in comparison with consumers in other countries) ; consumer behaviour (well-informed consumers, barriers to switching); market structure (barriers to entry at network/wholesale level) and supplier behaviour (active competition on price and quality; Prices broadly reflect underlying costs).

Our initial view was a bit mixed. Consumers getting a good deal in many respects and future trends quite encouraging. But still some areas of concern e.g. roaming and off net. Possible that some prices are above the competitive level. Market structure consistent with this – high barriers to entry. Consumers lacking clear information to compare competing networks/operators.

In considering calls to mobile phones, the key fact is that when a call is made to a mobile, it is the calling party who pays for the call, not the person begin called. This reduces the incentive on mobile network operators to lower charges as it is not their customer who pays for the call.

No conclusion yet on future regulation. But unless we find something we don’t expect, little case for retail price controls or cost-plus wholesale access. And if the market is competitive, then we will remove all regulation designed to promote competition.

Future challenges

Two biggest for Oftel – implementing the new EC directives and turning into OFCOM. On the regulatory front: ensuring appropriate regulatory framework for any firm proposals for BT restructuring.  

Conclusion

Only a brief overview. Oftel has a very active current and future programme. 100per cent committed to appropriate regulation.