I am very pleased to have the opportunity of explaining my regulatory approach in the telecoms sector to representatives from many other regulated industries.

I did, however, baulk slightly at the conference title of 'utility' in reference to telecoms, because telecoms has developed far beyond a basic standard service with limited innovation. It is now at the centre of the information technology revolution which many see as the vehicle propelling future economic growth - when the current difficulties with investor confidence are overcome!

But the timing for this conference is actually very appropriate in a number of ways.

Firstly, Ofcom, the successor to Oftel as the regulator for the telecoms sector, is on its way: the Bill, giving effect to Ofcom is proceeding apace through Parliament and there is every prospect it will be carrying out its regulatory functions by the Autumn. I have to say I am very pleased to have been appointed a member of the Board and I look forward very much to working with my colleagues in a converged communications environment. Ofcom faces some strong challenges, but Ofcom’s strength is it will be able to draw upon a wide range of skills and experience with which to tackle these challenges.

Secondly, in two weeks time, I shall have been the Director General of Oftel for five years - a period of substantial and exciting change in a fast moving and dynamic sector of the economy, which has posed some particularly thorny regulatory issues and helped to define my approach to regulation.

Thirdly, at the same time as the institutional structure is about to change, we are reviewing in one go all the regulatory rules that we currently have in place in virtually all of the telecoms markets. This is happening through the implementation of the new EU Telecoms Directives, which have to be in place by the end of July. The process provides a unique opportunity to ensure a coherent and consistent regulatory approach across all markets based on the concept of proportionality and the appropriate levels of regulatory activity.

So all in all today’s event provides a particularly good opportunity to stand back a little and look at how regulation has evolved and continues to evolve.

First let me reflect back a little to the early years of Oftel. Oftel has been in existence for getting on to 19 years having formally come into existence in August 1984 under the Telecommunications Act.

Today’s level of competition was then unknown. For the first seven years there was only one other operator licensed to provide fixed line service to BT - Mercury. Vodafone and Cellnet were licensed to provide mobile services but, like Mercury, took some time to establish their networks. So the first third of Oftel's life was characterised by virtual monopoly. The focus then was on setting price caps and establishing quality of service for consumers. BT had its immense advantages through being the incumbent, for example, access to all customers, a monopoly of customer information, ownership of the numbering system and a truly ubiquitous network developed over many years.

From an early time it was recognised that if competition was ever likely to become established, as was expected and set out in the Act, the key focus for the regulator would be to ensure access to BT's network: interconnection is vital to any aspiring infrastructure operator. Yet BT had no incentive to interconnect as it already had all the customers on its network. So early regulatory activity also focussed on establishing the terms of interconnection to BT's network for Mercury and also, as it happens, for access to Mercury's network by the mobile operators.

The relative success of Mercury's entry offering a state of the art backbone network providing direct competition to BT on international services and for large business users, encouraged the Government in the early 1990s to liberalise the UK market so that any operator could apply and obtain a licence. A key part of this policy was to allow cable television companies to provide telephony services in their own right.

As a result, considerable interest was shown at all levels in providing telecoms services and licence applications grew fast.

But BT remained hugely powerful retaining nearly all exchange lines. In fact, BT never lost a customer at that time, since those that chose Mercury tended to do so either for resilience or the opportunity to get lower international call prices.

The focus post full liberalisation in 1991 was to address BT's dominance through a variety of means. Firstly, to seek to remove entry barriers by, for example, taking on management of the numbering system and introducing number portability.

Secondly, to get to terms with interconnection by establishing a standardised approach for all operators, based on data transparency to ensure terms were fair, reasonable and non-discriminatory, especially in regard to BT's own use of its network. Accounting separation of BT retail, wholesale and access was established together with all relevant accounting data.

Thirdly, a determined attempt was made to police BT's anti-competitive behaviour to prevent it from forestalling entry, especially through selective discounting and bundling of services.

Competition was developing though inevitably at an uneven pace: the strongest competition was felt in the business sector and the international calls market. As a result the possibility of relaxing some of the regulatory rules eventually came on to the agenda.

And that highlights a further significant characteristic of the regulatory approach - the need for regulation to evolve as the market, aided by regulation, also evolves. And that, I believe, is a recurring theme of telecoms regulation, especially in recent years and I think my comments later will reinforce that.

An important feature to remember was that through the 1980s and most of the 1990s, the focus of regulatory activity was on encouraging competition in infrastructure which, of course, was reflected in the concern to establish a sound interconnection framework. It is interesting that this framework developed by Oftel has become in effect the European standard enshrined in the new Telecoms Directives. The logic of infrastructure competition was that it would naturally lead to service provider competition and indeed that has occurred. The UK has probably the most active service provider sector in Europe and is certainly on a comparable basis to that in the United States.

By the time I took office in April 1998 significant competition to BT at all levels was taking place. This reflected strong, effective, regulatory action but the pattern of competition was also inevitably a reflection of the underlying commercial opportunities. There was strong competition in service provision where entry is relatively easy but less competition in fixed line infrastructure and especially in the local loop where investment costs are particularly high.

By 1998 four mobile operators were in competition and the upsurge in mobile usage across all consumers was taking off, reflecting to a large extent the innovative forms of tariffing and service provision being developed in an increasingly competitive market place.

In early 1998 then, BT’s market share in calls was 74%, 64% for business and in residential 82% and in access was 86%. Voice calls still accounted for over 90% of all traffic and data less than 10%. The Internet was beginning to take off.

In the mobile market Vodafone and Cellnet (now O2) had just under three quarters of all mobile subscribers. One2One (now T-Mobile) and Orange had around 13-14% each.

The overarching test of the impact of regulation is the deal facing consumers. By the late 1990s, consumers were getting a vastly better deal than in the early 1980s. Prices for basic voice services had come down by over 50% in real terms, partially due to regulation and partially due to the emergence of competition, itself of course due to regulation. Moreover earlier problems with network quality of service had become a thing of the past, mainly thanks to digitalisation of exchanges and investment in fibre technology in the core network. Clearly the regulatory environment had struck a good balance between encouraging innovation, investment and competition and protecting the interests of consumers where competition could not do so.

Notwithstanding this happy state of affairs BT was, when I took up office and remains so to some extent today, a very dominant presence in a number of key markets especially in the basic service for residential customers.

Looking back over my five years shows, I believe, a continuation of past policies of enhancing competition and policing anti-competitive behaviour, whilst recognising the need to step off regulation when it is clear that effective competition can meet the needs of consumers. If the period to 1998 laid down the foundations for competition in basic services, the period since then has been one of building on this competitive base for developing competition in newer services. If anything, I believe my period in office has bought a renewed focus on delivering benefits to consumers. I have sought to make it clear over recent years that consumers are at the very centre of Oftel's regulatory policy. So if I was asked to assess how effective regulation has been I strongly believe it should be measured in terms of the benefits to consumers. Of course, innovation and investment are vitally important, as is the continued viability of operators but Oftel has a long and well deserved reputation for focussing regulation on outputs and the ultimate beneficiary of the regulatory process must be the end user.

Within this overarching mantra, it may not surprise you to know that, notwithstanding the extent of competition, I have been deeply involved in a variety activities, many of these related to the high profile areas of Internet and broadband services.

The growth in use of the Internet has apart from mobile dwarfed any other telecoms development in the last five years and I suspect that's true throughout the world. And it has driven fundamental changes to the technology of networks.

Compared to our European competitors we have one of the highest levels of take up of Internet access amongst residential customers. But to a large extent this has been achieved by regulatory action. One of the pressures in the industry some four years ago was for BT to come forward with an unmetered Internet service. After some delay and prompting from me, BT responded, but in order to ensure service providers could compete at the retail level I forced BT to make a wholesale product available. This has led to choice for consumers and the growth of an independent service provider market in Internet delivery. It is interesting that of all incumbent operators, BT has the lowest market share in Internet service provision in Europe.

So, again, regulation and competition together has proved key to meeting consumer needs.

Of course Internet is part of the wider market known as broadband - that is a higher capacity network provision allowing faster service and much greater variety. You will know that a wide and rapid take-up of broadband is a key government target.

From an early stage, my concern has been that broadband rollout should be fast and available to as many residential and business customers as possible.

There is no doubt that BT was initially slow in rolling out their own broadband capability based on enhancing its existing wire technology (known as Asymmetric Digital Subscriber Line). To some extent the problems this might have caused were avoided because of the success of the dial-up unmetered access product that we were instrumental in bringing forward.

But just after arriving at Oftel I thought it was an unhealthy state of affairs to rely solely on BT to provide a UK broadband capability. So, I forced BT to open up its local access network - the local loop - to competitors to provide their own broadband services direct to customers. The aim was to put competitive pressure on BT and to some extent also the cable companies to meet the burgeoning demands of UK customers for a broadband capability

My decision on local loop unbundling was taken before it became mandatory through the EU regulation.

Whilst the subsequent history of local loop unbundling has not been rosy, there is no doubt in my mind that it spurred BT to rollout its own broadband service and had a beneficial effect too on the cable companies. Another interesting example of regulating for competition to the benefit of the consumer.

Experience here, I think it is fair to say, coupled with other market developments and changes in BT's senior staff has lead to a much more proactive policy on the part of BT in meeting better the demands of its customers and particularly in the provision of broadband services.

In the same vein, I have recently been instrumental in encouraging a more competitive market in the supply of broadband facilities for major businesses. Most large businesses use leased lines, or private circuits, to carry their traffic. These can take very large volumes at very low cost. Business is clearly at the heart of UK's competitiveness so ensuring they get facilities at the lowest price is important for the economy.

Through regulatory action, BT was made to offer a new product called Partial Private Circuits which are, in effect, local loops for leased lines. Here BT has a stranglehold over the market but it faces competition in the main long distance links. So availability of a local end, allows competitors to offer full-scale end-to-end competition to BT's leased line business. The early signs are that there is a strong take-up by operators of this new product and therefore the prospect of some vigorous competition.

As a further part of the regulatory framework for broadband I have recently, in response to considerable demand from operators, allowed access to BT's broadband core network. This is a relatively new network designed to carry data in a much more efficient way than is possible on the existing network.

This is a difficult regulatory issue since the service is new and innovative and whilst I do not want to stop innovation I was concerned that there should be as much competition as feasible for alternative suppliers (I will pick up the issue of innovation and regulation later).

One of the key features of these regulatory decisions in the broadband area is that they represent a move away from the strong focus on infrastructure competition of the early 1980s and 90s that I mentioned earlier. That is not to say that in using BT's broadband networks or BT's local loops, considerable investment in infrastructure is not needed - it is - but the earlier policy was heavily driven by competing access infrastructure direct to the home.

I have responded to the demands of the market: even in times of stock market euphoria there was little demand to replicate BT's loop and, as the euphoria has faded operators' demands for reusing the BT network have grown.

I make no apologies for encouraging regulation in this direction. BT's original strength from its ubiquitous network remains and if competition is to have a chance to bring benefits to consumers, access to the network albeit on the correct terms is vital.

A key part of the broadband picture is its availability on mobile phones - so called third generation. I led the way in encouraging the Government to go for five licences in order to increase the prospects for competition.

But my regulatory action has not been exclusively focussed on broadband. I have been keen to encourage competition in the more humdrum basic telephony services, which remain the bread and butter of BT's business. I have set regulatory rules that have led to the growth of carrier pre-selection where consumers can pre-select which carrier they wish to take their calls whilst remaining with BT for access. This is a rapidly growing area and will put pressure on BT's retail prices.

Recently, as part of seeking to move from retail price controls, we have asked BT to provide a wholesale line rental product which non-network service providers can buy and provide their own offerings to customers. This offers the prospect of less regulation in the future through tough regulation today.

It is fair to say that competition has, over this period, developed fast and all markets are becoming increasingly competitive. Mostly I would argue as a result of strong regulatory action to ensure access upstream at the wholesale level and action to police anti-competitive behaviour by dominant (typically BT) operators. Where competitors can enter easily and where the rewards are attractive competition has taken off. So, for example, in the International calls market there is virtually no regulation and we have withdrawn from price notification arrangements in a number of areas.

So, where are we now in terms of competition? Well BT'S market share in calls is now just 60%, although in access it remains quite high at 82%. And in the mobile market apart from call termination price controls there is virtually no regulation and every sign that the consumer is getting a good deal. During my five years, Orange has moved from being the third largest operator in terms of subscribers to the largest - which shows the vigour of competition.

But as I have already noted, BT remain dominant, especially in the access or local loop market. This coupled with industry's frustration at BT's behaviour in the provision of unbundled local loops lead to calls for the break-up of BT over the last 18 months. It was felt that if BT were separated from its access network it would have no reason to foreclose competition.

I believe it is very important in this context to be clear the role regulation can play and where the benefits to consumers lie, so I made a statement in the summer of last year on my view about restructuring in the telecoms sector. This statement reflected my strong belief in a fully open and transparent regulatory regime as being most likely to ensure confidence in the regulatory process and in regulatory decisions.

So let me rehearse one of two of the key points I made in that statement: firstly it is very important for a fast moving market like telecoms, characterised by substantial innovation at all levels that regulation is up-to-date, relevant and proportionate.

Secondly, the key concern that competitors to BT expressed was BT's ability to leverage its dominant position at wholesale or access into retail markets by dictating the terms and conditions at which access to wholesale services was made available. After very careful weighing of the issues I stated that the powers I have allowed me to police BT's behaviour effectively, especially in the area of vertical leveraging. However, I did recognise that given the significance of these issues for competition, some tweaking of the rules to meet the needs of the market were necessary, and these are being pursued.

These initiatives should be seen in the context of the new legislation currently before Parliament that will allow the imposition of fines for breaking obligations - in itself a significant ramping up of regulatory powers.

I pointed out that although it was clear that BT had dragged its feet on implementing LLU, the framework outlined provided in my view a proportionate and appropriate approach to regulation of an important sector of the economy and I remain of that have subsided.

My determination is to ensure BT behaves fairly. If there is abuse of it’s position I will act. This was reflected in the provisional order I served on BT last month in regard to retail pricing for large customers. As a result BT withdrew the tariff and have now implemented a policy to ensure a full compliance culture amongst all its managers. But if that turns out to be ineffective then I will not hesitate to consider further action.

Finally, let me turn to the critical issue for Oftel currently, and almost certainly for Ofcom: regulation and innovation. To what extent are these issues compatible? I touched on this earlier in the context of regulating access to BT's broadband network but of course it has wider significance. First, let me say strongly that I believe that regulation and innovation are indeed compatible but great care is required to ensure that we get a win-win situation for the incumbent, competitors and consumers.

As you can see my thesis is that regulation evolves not according to the whim of the individual regulator but in response to changing market developments and the demands of customers. Because of its network ubiquity there is no doubt that BT is, in principle, in a position to provide broadband services to all people in the UK. But there are also competitors to BT who want a slice of the action and my experience is that when there is competition customers get a better deal. It is clear that innovation and new services are vital for competition, competitiveness and good for consumers, but they involve significant risk to the suppliers and inappropriate or messy regulation can increase that risk to the detriment of all.

Ideally, regulation should not apply to new services but BT's network market power means that other players too should benefit from exploiting innovation at the wholesale level. The challenge for regulation is not to undermine incentives to innovate. Ensuring a return on innovation is vital which is why access in the case of BT's broadband network was granted on the basis of BT's retail price, rather than a strictly cost based approach.

Getting the balance right between these conflicting objectives makes regulation even more complex and sometimes more intrusive. But it seems to me that it is an inevitable part of the evolutionary nature of regulation, meeting the demands of customers and consumers. Seeking the balance point is likely to become even more challenging in a world of convergence which changes the nature of markets and offers different commercial opportunities. In these circumstances my watchword is to ensure that customers get the best deal available. I very much look forward to taking up the challenge at Ofcom.