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Slides 1 & 2

I’ll start by explaining Oftel’s aims. The ultimate focus of all Oftel’s work is to achieve the best deal for consumers in telecoms.

Oftel firmly believes that consumers’ interests are best served by enabling the industry to compete to identify and meet their needs. This gives consumers a choice of services - it also fosters innovation.

Our role as the regulator is to make sure that industry can do this - by tackling bottlenecks in the market and addressing market failure.

We need to be careful about how we regulate. Too little regulation and the market could be cornered by dominant operators, with little choice for consumers and high prices. Too much, and incentives for investment in infrastructure could be undermined, leaving consumers with plenty of choice in services, but all delivered using the same technology over a single network which would need continual on-going regulation.

Our approach is to strike the right balance, ensuring that consumer needs for services are met in the short term whilst delivering a framework that is conducive to the development of competition at all levels of the value chain.

Slide 3

Translated to the broadband arena, this strategy means that Oftel has been focussing on addressing bottlenecks through requiring the provision of broadband wholesale products on regulated terms and conditions.

This should enable operators to compete to deliver broadband services to meet their customers’ needs

The ultimate aim is markets which deliver consumer needs in absence of regulation. Competition between delivery routes (infrastructure competition) is important to this aim because it will stimulate technological innovation and efficiency. If the market is competitive at infrastructure level, it should feed through into competition in services.

The result should be that consumers have a range of services they want at prices they are willing to pay - facilitated in the short- to medium-term through regulation, but increasingly delivered by the market itself allowing withdrawal from regulation.

Slide 4

There are a number of different ways to deliver broadband services to consumers - some are well advanced, others are still in development.

- BT’s wholesale broadband service available to broadband service providers;

- LLU - so other operators can supply services using their own equipment;

- Oftel proposes broadband interconnection - so operators can use their own and BT’s broadband network;

- cable operators offer broadband using cable modems;

- leased lines and Oftel’s recent ruling for BT to provide partial private circuits will enable other operators to offer more leased lines to businesses;
and

- other technologies coming through…. 3G, satellite, BFWA.

But I must stress that Oftel wants to see a range of different ways of delivering broadband services - this will lead to more choice, more competition and downward pressure on prices.

Slide 5

This is a diagram showing the various ways in which competitors can connect to BT’s network to provide DSL services to customers.

LLU operators - install their equipment in BT’s local exchanges. Oftel mandated llu August 2000 months ahead of EC Regulation. Oftel intervened on numerous occasions to set detailed terms for its provision. Most rulings are on cost-based terms. UK now has one of most comprehensive regimes in Europe.

broadband service providers - BT under licence obligation to provide wholesale services to other operators. They can use all of BT’s network to carry their broadband services to their customers eg video on demand and high speed Internet access.

other network operators - under proposed new ruling in December 2001by Oftel other operators can connect to BT’s ATM (Asynchronous Transition Mode) network and use BT’s broadband network.

I must stress that there is no single solution to delivering broadband. The best way is to present operators with the options and enable them to decide how best to compete, making maximum use of their own infrastructure.

Slide 6

60% households are in a DSL-enabled area, and with technological developments such as rate-adaption, an increasing number can use DSL services. Until recently, only 70% could access DSL, but rate adaption allows a lower spec product to be offered to a further 20% of those households further from the exchange building.

Most consumers with DSL access also have a choice of cable modem.

It is often forgotten that broadband access to the home for interactive services is already available to nearly everyone through digital TV with the return path over the phone line. Two-way satellite services are also being developed which can cover the entire country, although prices currently are above those for DSL and cable.

LLU -39 physical co-location sites under construction - further 16 already completed. 45 distant co-location sites completed - further five under construction.

Leased lines have been universally available for some time and businesses in metropolitan areas commonly have choice of several suppliers. The recent Oftel determination should further stimulate competition in leased lines leading to lower prices and faster take-up.

Slide 7

Availability is only one side of the story. We need to consider how many people are making use of broadband.

It is early days yet - numbers are still low - but they have increased massively in the last year:

- ADSL up by some 400%; and
- cable up by some 550%

I expect this trend to continue....

Slide 8

It is often said that the UK is lagging behind other countries in DSL provision…. But we should look at this in context.

BT launched ADSL later than in many other countries in Europe. The rate of take-up since launch in the UK is comparable to that seen elsewhere.

As has been said before, the UK also has a competitive environment that is not commonly matched elsewhere:

- cable operators are making great strides; and
- the UK is one of only a few countries where the incumbent doesn’t have the lion’s share of DSL subscriptions; there are many competitors.

All this is good news for the longer term development of competition.

Particular factors which may affect take-up in the UK are the availability (unlike in the rest of Europe) of cheaply priced flat-rate Internet services. Price is also cited as a factor in take-up. These are explored in the following slides.

Slide 9

One factor to consider which may have had a delaying effect on roll-out and take-up of broadband in the UK is the availability of cheap flat-rate Internet access. The UK is unique in Europe in this respect.

Prices for Internet access in the UK amongst lowest in world with widespread competition in provision of both metered and unmetered (through FRIACO).

This means that the needs of some consumers for reasonable and predictable pricing may have been met through availability of narrowband products. In other countries those consumers may have needed to go straight to broadband products.

However, whilst flat-rate availability may have had a delaying effect, it could make a positive contribution to broadband take-up in future as it provides a ready supply of experienced customers.

Slide 10

The pricing issue has also been raised as being critical to take-up in the UK. We shouldn’t look at price in isolation - but rather the ‘value’ of a service. Consumers might be prepared to pay more if more valuable services are developed.

Oftel’s recent benchmarking study shows that while the UK’s cable modem prices are amongst the cheapest in the world, the prices for residential DSL are much higher than elsewhere. Monthly rental includes installation cost spread over three years - in fact rental is £40pm

Competition from cable should help to drive prices down, and BT is due shortly to introduce a new self-install product which should lower costs. BT’s wholesale prices for consumer products have already been reduced in the last year and we expect this trend to continue.

Slide 11

Prices paid by SMEs for broadband services are however comparable to those offered elsewhere. There is a wider range of services offered in Germany and the US.

Again, we are aiming to address this. Oftel’s recent determinations have been designed to ensure that businesses as well as consumers can be served with a range of products to meet their needs - such as the recent determination for BT to supply ADSL and SDSL interconnect products, and the PPC determination.

Slide 12

We should also take this opportunity to mention other work that Oftel is undertaking to further the prospects for competition in broadband markets and addressing consumer needs.

Oftel has expanded its work on market research to ensure that its work is based on up-to-date and accurate information. Last year we began a benchmarking exercise of DSL and cable prices and will be expanding this to include unbundling and wholesale DSL. We will be looking carefully also at experiences in the US and elsewhere.

We have also undertaken research on consumer attitudes towards the Internet and broadband access, and will be working to improve consumer awareness through our proposed ‘kite-mark’ scheme for comparison websites and through the publication of new consumer guides. We have worked to build awareness amongst small businesses through our Small Business Task Force and have published a guide to broadband for small businesses.

Oftel has also advised on and contributed to Government initiatives to ensure schools and other public institutions can access broadband services and initiatives to roll-out broadband to remote regions.

Slide 13

Comparing take-up of broadband with other technologies gives an interesting perspective.You will notice on this graph that the line for broadband is barely visible. That is because we are still at a very early stage in roll-out - but progress is comparable with other technologies.

Like other technologies, take-up has been led by early adopters only. Others are more hesitant about moving to broadband, but may when attractive products are delivered at the right price.

It is likely that broadband will, like other technologies, build up and reach critical mass over a period of time with consumers coming on board when they perceive that the services and functionality available over broadband are useful and they are prepared to pay the going rate for them.

This reinforces the principle we have always upheld that the market is - first and foremost - best-placed to develop and deliver products to meet consumers’ needs as an when demand arises.

Slide 14

In summary then, I hope I have shown that Oftel has played its part in delivering a regulatory framework that will allow competition in broadband to develop.

We are already beginning to see positive results… availability for 60% households with competition between cable and DSL and in the provision of services over DSL. There have been industry estimates that there will be three fold increase in broadband take up in 2002. I hope this is a conservative figure. Why? Because last year take-up increased over 500%.

But it is important to put this in perspective. We are still at a very early stage in the development of broadband. I hope that the regulatory framework is in place to allow the industry to develop products to meet the needs of consumers and businesses as demand grows.

Oftel will continue to take swift and firm action wherever necessary to ensure the continued development of competition in broadband markets. But Oftel can’t drive demand. Ultimately that is something that industry and consumers will do.