Access to bandwidth : Bringing higher bandwidth services to the consumer

A Consultation Document issued by the Director General of Telecommunications

Chapter 1 Introduction

Chapter 3 Existing and prospective technologies which serve the market for higher bandwidth services

Chapter 4 Regulatory intervention

Chapter 5 Options for action 12

Chapter 6 Considering the implications of these options

Annex 2  Description of DSL technologies

Annex 3 Technical Descriptions of Access Options

The subject of this consultation is the provision to residential and small business telecom users of new higher bandwidth ‘Information Society’ services (such as high speed Internet access, video on demand etc). The main question asked in this consultation document is whether there are barriers to the commercial provision of these services and whether Oftel needs to intervene to allow competing network operators to offer these services to customers.

Chapter 1 sets out the background to this consultation.

Chapter 2 seeks views on current and future demand for new services. Regulatory action would be inappropriate in the absence of reasonable demand. It is not for the regulator to tell consumers what they want. On the other hand it is important that regulation keeps pace with market developments.

Chapter 3 seeks views on the routes by which the new services can currently be delivered to residential and SME users. Options considered include the upgraded copper loop (probably the most likely route), the cable network, leased lines and satellite links.

Chapter 4 considers the case for regulatory action. It asks whether a competitive market is developing such that demand from consumers will be met by companies supplying the services. If so, then regulatory action is unlikely to add anything – and indeed could be counter-productive. However if there were barriers to the development of such a competitive market – for example stemming from BT’s position as provider of the local connection to some 85% of households and small businesses – then there might be a need for Oftel to act.

Chapter 5 considers five options for possible regulatory action to enable suppliers competing with BT to gain access to the customer. The options range from ‘local loop unbundling’ under which BT would be required to transfer control of the local loop to a competitor, to ‘indirect access’ whereby BT would operate a higher bandwidth public network to which competing operators could have access, on terms approved by the Regulator if necessary. Chapter 5 also seeks views on the approach to charging for each option. The price which competing operators would have to pay is crucial to an assessment of the effect of each option.

Chapter 6 considers the implications of the options for BT’s and other operators’ incentives to invest in their networks, on competition in other parts of the telecoms markets, on the risk faced by operators generally and some of the technological obstacles which would need to be overcome for successful introduction of the service.

This document aims to stimulate a thorough debate on a key issue. Informed by responses, Oftel will develop its views within the context of its policies to promote availability of telecoms services and to stimulate the maximum degree of competition in both services and infrastructure for the benefit of the consumer.

1.1 Oftel’s goal is quality, choice and value for money for customers. The promotion of effective and sustainable competition underpins Oftel’s approach to regulation.

1.2 This consultative document looks at competition and choice in telecom services to customers, particularly residential users and small businesses (SMEs), over BT’s local loop ie the copper wire that serves the customer’s home or business premises. The focus of this paper is on competition and choice in the new, more advanced services which require higher bandwidth, for example fast Internet access and video-on demand.

1.3 Oftel is looking at this subject now for the following reasons:

The rapid expansion of new technologies capable of delivering the new, advanced services over copper loop infrastructure. The most notable development is in digital subscriber loop (DSL) technologies. However BT’s local copper loop, which supplies 85% of homes and business premises served, at present can only deliver narrowband services such as basic telephony and slow speed data (Fax and slow speed Internet access). Moreover the current UK regulatory rules are also designed primarily for such narrowband services;

The EU 1999 Review. In 1999, EU telecommunications law, which sets the framework for UK regulation, will be reviewed. The European Commission has put the regulatory rules determining access to the end user, including Local Loop Unbundling (LLU), high on its agenda for the Review. It is important that Oftel gathers views from UK telecoms industry and customers so to be able to make a full and informed contribution to the debate;

The importance, as the UK Government have stressed, of bringing the benefits of new technologies to all. This enables the development of a knowledge-based economy vital to the UK’s competitiveness.

Developments elsewhere in the world. The critical importance of modern telecoms services to competitiveness is unquestioned. Telecoms regulators in the US and elsewhere in the EU are introducing new rules, including LLU, to ensure access to consumers. While circumstances in the UK may be different, reflecting the UK’s approach of encouraging construction of alternative networks, it is important to ensure that the UK is not losing competitive advantage.

1.4 It is therefore timely to consider whether the UK’s current regulatory approach is still appropriate. This paper approaches this question in stages:

First, the effective demand, both existing and in the future, for the new services;

Second, existing and future options for supply of the new services to residential and SME customers;

Third, whether any effective demand from residential and small business customers for these new telecoms services is or will be met and if not, whether market developments will rectify problems of availability or whether there is a case for specific regulatory action; and

Fourth, if there is a case for regulatory action, what form it might take.

1.5 Oftel does not set out a preferred approach. Instead this paper sets out Oftel’s understanding of the current position, likely trends and possible implications, and defines the basis on which regulatory intervention would be justified.

1.6 BT’s existing copper loop carries narrowband services (eg basic telephony

etc) which require a bandwidth of 4kHz. The new DSL technologies will extend the effective bandwidth of the copper loop so that services carrying several Mbit/s of capacity may be practical. This will enable a range of new services to be carried. Current examples include high speed Internet access and video-on-demand although new services are being developed all the time. It is therefore not appropriate to define the precise services that might be delivered but instead Oftel should consider what wholesale access services would be needed to carry them. These will lie mainly within the range 384kbit/s up to 2Mbit/s.

1.7 In 1995, Oftel looked at the issue of LLU for basic telephony (no-one was, of course, talking about mass market Internet or video services at that time). This consultation considered whether to require BT to develop and offer access services. However competing operators showed no interest. This was because commercial deployment of LLU would have required very significant infrastructure investment, building out or leasing lines to BT concentrator sites; and because at that time Oftel was removing the requirement to pay access charges as part of interconnection payments. This meant that access to customers via indirect access was much the better option commercially – it gave operators use of the loop for free whereas with LLU they would have had to pay for it.

1.8 Oftel explained its position on local loop unbundling and indirect access in its 1996 Statement on indirect access, equal access and direct access to the copper loop. In that statement, Oftel made a commitment to review the question of local loop unbundling should there be significant changes in UK markets. As set out in paragraph 1.3 above, major changes are now taking place in UK markets, particularly as volumes of data traffic start to exceed voice and as packet switching technology evolves the potential of UK networks.

2.1 This chapter considers current and future demand on the part of residential and small business customers for higher bandwidth services.

2.2 When assessing possible future market developments and, where appropriate, the case for regulatory action, it is effective demand that is important and the extent to which it is not met either now or in the future. Effective demand takes account of the willingness of the consumer to pay a price for the service that covers the cost and provides the supplier with a reasonable rate of return. For example, it is not simply a question of asking residential Internet users if they would like faster access – no doubt all would – but whether they are prepared to pay the cost (plus a reasonable rate of return on investment) of such a service being provided.

2.3 A further factor to be taken into account in assessing demand is the particular characteristics of some higher bandwidth services, notably entertainment services, whose key feature is content. Such services may have significant fixed costs and small marginal costs. Thus, in order for their production and sale to be viable some reasonable guarantee of access to the mass market may be necessary. However, suppliers of higher bandwidth access services might be reluctant to invest in the access network to develop the needed access services if there is no obvious demand from content suppliers. Under these circumstances both the services provided over the higher bandwidth access service and the access services themselves suffer from a critical mass problem, and the effects are likely to be mutually reinforcing. This problem will be exacerbated if the suppliers of content feel that there are additional barriers in their gaining access to a mass market – such as refusal to supply the wholesale access service by a dominant company that controlled such access.

2.4 While predictions of demand are difficult in such a rapidly developing area, current trends can give an indication of predicted demand. For example:

• At present there is significant demand by large companies for higher bandwidth services. The market is estimated to be worth around £1bn p.a. and a number of operators are active in meeting this demand primarily by direct fibre connections to the customer’s premises.

• Internet usage in the UK, as elsewhere in the world, is growing rapidly. There are currently estimated to be over 2 million dial up subscribers in the UK and this is growing at an annual rate of approximately 100% per year. Most of these are residential and SME users.

• In the United States, whose markets are often a good indicator of what products might succeed in the UK, local telephone companies are just beginning to offer DSL services as are some competing companies utilising LLU This suggests that demand probably does exist for the wholesale services which suggests that some investors clearly believe there is demand for higher bandwidth retail services.

2.5 Companies’ investment plans can also give an indication of expected future

demand. Examples include:

• BT has launched Home Highway indicating belief that consumers are willing to pay for faster Internet access. BT is also undertaking ADSL trials in North London with a number of service providers offering video-on demand, fast Internet access, home shopping and banking.

• Cable operators are investing in new services to their subscribers such as home shopping, access to the Internet and interactive TV.

• BIB, recently renamed OPEN, are also planning similar services delivered by satellite with a phone line return path.

2.6 This is by no means an exhaustive list. Oftel is aware that other companies are also exploring this market though plans have not been announced. It is also quite possible that there will develop an unknown service or perhaps extension of a current service that could have mass market appeal. It would be important to ensure that any regulatory action did not discourage development of higher bandwidth retail services.

2.7 There is also likely to be effective demand in certain market segments, for example SMEs (notably those in the creative and high technology sectors), small sites of larger companies, tele-workers and heavy Internet residential service users.

3.1 This chapter considers issues relating to the supply of higher bandwidth

services to the residential and SME market. It examines the existing position and also looks at likely future developments. As described above, the focus is on services delivering information between about 384 kbit/s and 2Mbit/s.

3.2 The successful delivery of higher bandwidth services to customers requires several services notably: appropriate access capability (ie the ability to deliver over the final link to the customer’s premises); backhaul (ie conveyance from the supplier to the local exchange); content/service provision, and service surround (ie billing and network management). Although this consultation concentrates on the access capability, all these other features of the supply chain must be present to deliver commercially viable services. Moreover increasing opportunities for growth in delivery of higher bandwidth would have implications for other aspects of the supply chain which service providers and network operators would have to resource.

3.3 At present, the main supply option to the residential and SME market is via BT’s copper loop which, as explained above, is currently only capable of delivering narrowband services. The growing cable network will increasingly provide an alternative access route once its higher bandwidth capability is exploited for two-way services. At present the number of households with access to cable companies’ networks is just under 50%, of whom 38% have taken up cable services. This means that about 16% of UK households are currently served by cable operators. Thus the creation of a significantly increased higher bandwidth market involving these customers will require extension of the capability of copper, more extensive rollout/higher take-up of cable combined with extension of its capability and/or the rollout of other realistic alternatives such as fixed radio higher bandwidth access.

3.4 This section considers current and future supply options.

3.5 Fibre installed direct to the customer’s premises would readily provide higher bandwidth access at high data delivery rates – higher than those achievable with DSL technologies – and would thus be capable of handling likely future increased demands. Fibre is currently being used in this way where there is a high density of demand, for example large volume users in the business market. However installation of fibre to replace the copper loop is expensive and, at least in the short term, widespread installation and deployment of fibre direct to low volume customers’ premises is not expected to be economic until there is mass market take-up. However use of fibre to distribution points (eg street cabinets) may become economic even in areas with a low-density demand.

3.6 At present leased lines are widely used to deliver higher bandwidth services to the business market which is currently worth some £1bn p.a. with a number of competing operators active – see paragraph 2.4 above. However it seems unlikely that leased lines will prove suitable for wider deployment eg to the residential and SME market. This is because retail prices are relatively high compared to the copper loop and each customer buys a dedicated capability available for 24 hours a day even if their actual utilisation is less.

3.7 BT also supplies baseband leased circuits (sold as ‘Keyline Baseband’) comprising a direct copper connection between two points to which customers can connect terminal equipment. These circuits already allow the attachment of HDSL modems (for 2 and 3 pair working). It is possible that with suitable spectrum management rules these circuits could provide a higher bandwidth capability.

3.8 The cable networks which, as described above, now pass some 50% of homes offer a potential supply route for higher bandwidth services to the residential and SME market. The main emphasis to date of the network operators has been on the provision of cable television and telephony services and at present the cable networks generally only have the capability to offer one way higher bandwidth access. However, cable modems are becoming available from some operators that will provide 2-way capability. The practical data rate available to the individual user will be limited by the sharing of data capacity between users but is still expected to offer a greater capacity (c. 500 kbit/s ) than basic rate ISDN and so may be potentially attractive to many residential and SME users.

3.9 Radio spectrum in the 10 GHz region has been allocated to three operators and this spectrum could be useable for higher bandwidth fixed radio access. Further higher frequency allocations are being considered (in the 28 and 40 GHz bands) which could support higher bandwidth data up to 155 Mbit/s. Radio offer some advantages in terms of access to customers notably its flexibility in building the access infrastructure. On the other hand, it may have practical problems of reach and interference and costs of terminal equipment may be higher than for equivalent fixed alternatives. Radio spectrum will also be allocated soon for UMTS services which will have the potential to provide data transmission at 2 Mbit/s for fixed and transportable applications. It is expected that UMTS services will be available from 2002.

3.10 This technology involves delivering telecommunications services via electricity distribution networks thus offering the potential for wide-scale deployment. However at present such technologies are not technically nor commercially proven. It therefore seems unlikely that, at least in the next few years, they will provide a mass market delivery route for higher bandwidth services.

3.11 Satellite is commonly used at present to provide one-way higher bandwidth capability (eg for television broadcasts). Provision of two-way higher bandwidth capability over satellite is not common in the residential and SME markets because of the economics of the return path. However recently ‘hybrid’ solutions have been developed involving delivery of a higher bandwidth capability via satellite with a return path to a service provider using conventional narrow band PSTN technology. This is already being used to provide interactive TV services and may be used in future to provide fast Internet access.

3.12 DSL technologies enable higher data rates to be delivered over copper loops thus extending the effective bandwidth of the copper loop. The range of DSL technologies – described briefly in Annex 2 – offer data transmission capability between the low hundreds of kbit/s up to 10-20 Mbit/s. HDSL offers the same data rate in both directions (symmetric capability) and ADSL gives asymmetric capability (different upstream and downstream data rates).

3.13 The use of DSL technologies would provide higher bandwidth conveyance in the copper access network thus providing a supply route to the mass market. Nevertheless there are certain prerequisites and limitations. For example:

• DSL technology is only effective when used over the shorter copper loop distances, with the highest speed variants currently only practical over a few hundred metres;

• all DSL technology requires some equipment at the customer’s premises;

• – -while ADSL and ‘DSL-Lite’ will support fast Internet services and, to some extent, moving picture information, data throughput may not always be sufficient for continuous high quality delivery – though this may improve;

• for higher data throughputs VDSL could be used but this is only effective at very short distances. This would require a hybrid solution with the DSL technology being used over short loops from street distribution cabinets to the customer’s premises, with fibre backhaul to the exchange.

• all DSL technologies raise difficulties from the possibility of interfering with other services provided on the same cable.

3.14 At present BT provides extensive leased line products capable of delivering higher bandwidth services. BT is also currently conducting trials of ADSL services to the residential market with a view to offering these services commercially. Oftel understands that BT expects to launch a commercial service of some sort in April 1999. However, neither the geographic extent nor the final specifications for service have been decided yet.

• while other alternatives (cable, satellite and radio) are available, none has yet been commercially exploited on a large scale;

• copper loops, enhanced by application of DSL technologies appears to be the best means of wide and early access to higher bandwidth services for the residential and SME customers.

4.1 The previous chapters have considered present and future effective demand for higher bandwidth services and current and future supply of such services. This chapter considers the case for regulatory action and the circumstances under which regulatory intervention might be justified.

4.2 As stated in Chapter 1, Oftel’s role is to enhance quality, choice and value for money for customers. Its primary approach is promotion of competition. Oftel believes in competition where possible and regulation only where necessary. This is because competitive markets are most likely to promote innovation and increased productivity with resulting benefits in terms of lower prices and better quality and choice for consumers. In line with this, in the area of economic regulation Oftel’s starting point is that regulation should be limited to situations where competition is either not possible or is not working effectively or where costs and benefits accruing to third parties are not taken into account by market participants. In other words, in the language of economists, where there is a ‘market failure’. (Note: other regulatory issues, such as consumer protection and the delivery of social objectives are not addressed in this document.)

4.3 This consultation is concerned with the access of residential and SME

customers to higher bandwidth services. It is clear from the previous chapter that, at present, retail higher bandwidth services are not available to the large majority of such customers in the UK. However it is necessary to examine the reasons for this before it can be concluded that regulatory action is justified. The elements of this analysis are as follows:

i) The effective demand for such services.

4.4 This is explored in Chapter 2. If there is no little or no effective demand then it is difficult to conclude that competition is not working effectively. The time may simply not be ripe. (This may point to a monitoring role for Oftel as the market develops but that is outside the scope of this consultation.) However if there is, or might be in future, unmet effective demand, this could be the result of circumstances which prevent effective competition at the retail level. An example would be if there was customer demand for the services at a commercially viable retail price, but the potential suppliers of these services are unable to supply them to customers because they cannot obtain some necessary inputs.

4.5 The most obvious essential input for the provision of higher bandwidth retail services is a higher bandwidth access service giving a delivery route to the consumer. Chapter 3 surveyed the various supply options for higher bandwidth access. Oftel’s preliminary conclusion is that, at least for the near future, BT’s traditional copper access network (the ‘local loop’), with its capability suitably enhanced, is the best means of providing two-way higher bandwidth access to the mass market.

iii) The market situation for access services.

4.6 It is important to distinguish between the retail services that are delivered to the end user ie high speed Internet access or video-on-demand and the wholesale services provided by BT (as owner of the access lines) to enable other operators/service providers to deliver such services to the end customer over its access lines. For the purposes of considering whether or not regulatory action is appropriate, it is the provision of such wholesale services which are important since these enable competition in the supply to the end customer. Of course the two are linked. If BT were to provide higher bandwidth services to its own retail customers, then, under its licence it must offer the same underlying wholesale services to enable other service providers to provide their own services.

4.7 It is clear that currently there is no significant supply of these wholesale services. Of itself this does not indicate that there is a barrier to effective competition. The lack of supply might be simply a reflection of the lack of effective demand for retail services (ie demand at a price that would make the provision of the services commercially viable). However, it is possible that there are other reasons for the current lack of supply of wholesale services, some of which might be regarded as a barrier to effective competition in the retail market for which regulatory action might be justified.

4.8 BT currently supplies over 85% of the access lines to residential and SME customers over which higher bandwidth wholesale services could be made available. It is clear, therefore, that BT has a very strong market position in the supply of access lines and therefore, potentially in the supply of higher bandwidth services at both the retail and the wholesale level over these access lines. As noted above, the lack of supply of these services could reflect lack of effective demand. However it could also reflect use of this market position to hinder development of retail services, supplied by third parties, which competed with BT's existing products or which might get into the market place before BT was ready to launch its own higher bandwidth retail services. Both types of action could result in competition being prevented from working effectively to the detriment of customers.

4.9 As stated in paragraph 4.2 above, Oftel believes that regulatory action may be appropriate in situations where competition is not working effectively so to bring benefits to consumers. However this does not mean that regulatory action is automatically required in such circumstances. It is necessary to consider whether regulatory action would be the best means to achieve the desired objective of effective competition.

4.10 For example regulatory action might be inappropriate where the barrier to effective competition is likely to be short-lived ie other suppliers might be able to compete effectively in a relatively short space of time. This might happen if competing networks eg cable were developing sufficiently quickly that they offered a significant proportion of customers an alternative supplier of access lines. In such circumstances, it is unlikely that BT would be able to maintain a barrier to effective competition which is likely to develop satisfactorily of its own accord. Regulatory action would also be inappropriate if it were to lead to a requirement to make uneconomic investment.

4.11 Access to the local loop or access line is just one example of a gateway through which those wishing to provide services have to go and which is controlled by a company with a strong market position. Oftel recently made a submission on its approach to gateways and bottlenecks in response to the areas of further reflection identified in the European Commission's ‘Working document summarising the results of the public consultation on the Green paper on the Convergence of the Telecommunications, Media and Information technology sectors.’ A major part of that submission contained Oftel’s initial views on the circumstances and terms under which operators of networks or of gateways within networks should be obliged to allow access (to the network, or through the gateway) to competing operators or service providers. As summarised in Annex 4, the analysis in the paragraphs above is consistent with Oftel’s submission to the European Commission.

4.12 This Chapter has set out Oftel’s approach to regulation to achieve effective competition and hence benefits to customers. It has also described a framework for applying this approach to the provision of higher bandwidth services to the residential and SME market.

5.1 Should Oftel decide, in the light of the analysis described in Chapter 4, that regulatory intervention was appropriate, there are a number of options for action which might promote effective competition in the market for higher bandwidth services. These are outlined in this chapter with further technical descriptions in Annex 3. These options are not mutually exclusive and could exist either independently or as part of a range of services provided by BT. The options below comprise access services which might be considered as reasonable for BT to provide in order that other companies could deliver their own higher bandwidth retail services.

5.2 Under Option 1 BT would be required to make its copper cable pairs (ie the local loop) available to another operator to incorporate in its network. Using equipment co-located with BT’s own at the local exchange building, the new operator would attach its own broadband equipment (eg a DSL modem) to the loop and also provide the end customer with matching equipment.

5.3 If the customer chose to switch to the new operator (so to obtain the higher bandwidth services) then he/she would no longer receive telephony services from BT and/or indirect access operators (who, under BT’s licence have a right to provide services over BT’s network). Instead, since control of the local loop transfers to the new operator, the customer will have to obtain telephony services as well as the higher bandwidth services from the new operator who will provide them either directly or in conjunction with a service provider.

5.4 Potential interference between higher bandwidth services provided over an unbundled loop (controlled by the new operator) and services provided over copper loops controlled by BT or other operators but within the same cable would also need to be addressed. Each copper cable can have many hundreds of individual loops all closely packed together and ‘crosstalk’ between the pairs can be significant. This can be solved by ‘spectral management’ ie managing the kind of equipment attached to cables and the power and frequencies they transmit, described in Annex 1 to this document. However it would require co-operation between BT as owner of the cable and the new operators, which may not be consistent with the contractual arrangements implicit in this option.

Option 2: Partial Baseband Leased Circuit

5.5 This option is similar to Option 1, but involves a different contractual relationship between BT and the new operator. Instead of BT providing a copper loop to the other operator, BT provides a telecoms service with defined characteristics to the other operator– effectively a leased line between the customer and the local exchange.

5.6 This option is called a Partial Baseband Leased Circuit for the following

reasons. ‘Partial’ means that the leased circuit extends from one customer to the local exchange, whereas a normal leased circuit would extend from one customer to another, passing through one or more exchange buildings en route. ‘Baseband’ means that the bandwidth provided by the circuit extends right down to zero Hertz – in other words, can transmit direct current over the plain copper pair. There is also no planned upper bandwidth limit whereas voice grade leased circuits cannot pass information above 4000Hz..

5.7 The effect on provision of services to the customer is similar to Option 1,

as described in paragraph 5.3 above. The same need for spectral management, to avoid mutual interference with other services, would also arise. BT would need to know that the other operators were using appropriate approved equipment, and also, via some registration system, when equipment were being attached to individual circuits. However under the draft new EC Radio & Telecoms Terminal Equipment Directive, PTOs should provide full information to others on what is necessary to ensure there is no ‘harm to the network’ – meaning harm to other users’ communications, where this is agreed to be an ‘essential requirement’.

5.8 Under this Option, instead of the new operator installing DSL equipment at

both ends of the local loop, BT owns and operates the DSL modems (or other

equipment) on each access line. The new operator connects to the broadband digital bit-stream provided by the circuit at the local exchange building (where the new operator would need to co-locate equipment with BT’s) and then takes the data onto its own network.

5.9 Under this option, the customer would still have a contract with BT for

access to the network and, if he/she so wished, still receive telephony from BT (and indirect access operators over BT’s network) but receive higher bandwidth services from the new operators.

5.10 With this option, spectral management issues are solely an internal issue for BT to manage.

5.11 Under this Option, BT provides other operators with higher bandwidth

access (via DSL on the copper loop) to the end customer via a point to point data service between the higher bandwidth customer access lines and the service provider’s own site. From here the service provider provides, for example, Internet access or video services might be provided. This is BT’s current approach on its ADSL trial being carried out in North-West London. The data service may use either Internet type protocols or Asynchronous Transfer Mode (ATM) or a mixture of the two. More details are provided in Annex 1.

5.12 The service is described as a Permanent Virtual Circuit. ‘Permanent’

because each customer is linked to a specific service provider: there is no call by call selection. ‘Virtual’ because there is no discrete physical circuit provided for each customer’s connection, rather the data from many customers is multiplexed together and the service provider recognises a logical connection between each customer and the data packets flowing on the circuit.

5.13 From the customer’s perspective the implications are much as in Option 3, described in paragraph 5.9 above. The key feature for new operators is that they do not have to provide discrete equipment and circuits into all of BT’s 6000 local exchange sites in order to offer higher bandwidth services nationally. This allows them to offer services with greater reach to customers with limited investment in infrastructure.

5.14 Here the higher bandwidth (DSL) access line is connected to a broadband public switched network. This would work like the present PSTN in that, by dialling appropriate customer numbers, individual calls could be set up by the customer between his line and any other higher bandwidth line or service. Indirect Access, perhaps using special service provider access codes, could be used to switch calls to other operators and service providers. This is an exact analogue of the present Indirect Access used on the telephone network. Carrier Pre-Selection would also be possible. However, it is not clear what plans BT might have to introduce a generic broadband public switched network on which such indirect access could be provided.

5.15 The charges set for operators to get access to higher bandwidth infrastructure will make a decisive impact on the market for services to consumers, on existing direct access competitors and on incentives to invest by all operators, including BT. This section looks at the considerations which would influence Oftel’s approach to charging.

5.16 There are two obvious methodologies for setting charges for unbundled local loops: charges based on costs and charges based on current retail prices for access to the local loop. If tariffs were in line with costs, the two approaches would be similar. However, for commercial reasons generally access is priced below cost with calls being priced above cost ie tariffs are unbalanced. This results in significant difference between the two methodologies.

5.17 If tariffs remain unbalanced, a charge for unbundled local loop based on

the retail price for telephony access could result in BT being forced to supply loops to competing operators at prices below cost. This could seriously erode the incentive on competing operators either to build new local loops or to upgrade its existing local access infrastructure.

5.18 An alternative approach based on retail prices would be to take account of BT’s revenues from all services carried over the line as well as the charges for the line itself. If these revenues, net of costs, were fully taken into account in setting the charge for the unbundled local loop, BT would be indifferent between using the line to provide its own services and selling the line to another operator. Whilst this might ensure that only operators who could use the line more efficiently than BT would rent it, it could also serve to protect BT’s revenues rather than exposing them to competition.

5.19 A number of cost methodologies are potentially appropriate, though each

one will have different impacts on a range of customers, competitors and shareholders of incumbent firms. The choice is dependent on the objectives and the direction of policy.

5.20 In the UK, Oftel’s policy is to encourage the development of competition in all parts of the market where this is viable. This includes competition in services and competition in the provision of local infrastructure based investment. This points to a cost methodology set on the basis of actually incurred forward-looking costs. This should result in entry by those who believed their costs would be lower than those of the incumbent, but not by entrants who believed their costs would be higher. In other words, efficient entry is encouraged and inefficient entry discouraged. Any charges set below this level could have the effect of deterring efficient infrastructure based investment.

5.21 Oftel has used cost information available to it used to estimate the approximate range of charges set on this basis. This cost information is derived from the model based on BT’s costs (the top down model) used to calculate incremental costs for the network charge controls. The incremental cost top-down model for interim 1996/97 shows the annual average incremental cost per line to be £113 and for 1995/96 the average incremental cost per line is £127. (The difference is due to movements in the asset price of copper – no trend should be assumed in any direction and in future this figure could go up or down). From these numbers should be subtracted the costs of the line card and other non-traffic sensitive costs relating to elements not supplied as part of the unbundled local loop. These costs are of the order of £25 per annum. On this basis, after adding the equal proportionate mark-up rate of 10.3%, the cost of taking over a copper loop could be around £100 – £115 per annum.

5.22 Under these Options BT itself upgrades its local loop facilities and supplies wholesale higher bandwidth services rather than renting the local loop to other operators. Thus it seems appropriate for the purchasers of such wholesale services to pay a charge which covers the cost of the network upgrade and the forward looking costs of the services, including an appropriate cost of capital.

5.23 Since the new operator would not actually be taking over BT’s customer line, the valuation of local loop assets would be a less critical feature of the calculation than for LLU pricing. BT would be free to recover any deficit on its exchange line in the way that it currently does, through call charges for telephony. It would be necessary for the new operator to cover the incremental costs, including an appropriate cost of capital, on new investment incurred by BT in providing it with the wholesale services. While it is possible for BT’s ability to recover its access deficit from telephony to be undermined by the competition from indirect access operators, this is true under existing rules and would not be a problem caused by the provision or pricing of higher bandwidth indirect access services.

5.24 At present charges for BT’s exchange line rental (the access charge) are geographically averaged ie the consumer pays the same regardless of costs differences between geographical areas. Should the price of wholesale higher bandwidth services also be averaged in this way or should prices differ geographically to reflect the variations in cost?

5.25 Some considerations:

• charges varying by area would provide better signals for investment. For example, an operator would have a more accurate basis on which to decide whether to build infrastructure or buy services from BT – the ‘make or buy’ decision;

• charges varying by area might create undue incentives for arbitrage, given those operators taking up access would be competing against a geographically averaged exchange line rental. The result might be to encourage access to be taken up in low cost areas and discourage it in higher cost areas. This issue already arises in respect of cable as costs vary by franchise area but BT’s prices do not. But higher bandwidth access might exacerbate the problem and create tensions for both BT and competing access providers

6.1 Should regulatory action be considered justified (see Chapter 4 above), then these options, either individually or in combination, may be appropriate. In addition to their individual merits (or otherwise) any decisions would also be subject to Oftel’s usual tests of whether there were commercial and technical alternatives, viability and the availability of the necessary resources for their provision. Oftel would also take into account the possible implications described below.

6.2 Oftel would wish to ensure that BT and other direct access operators continue to have incentives to upgrade their networks and roll out to customers. Clearly the impact would be crucially dependent on the charge that is made to the new operators. Charging has been discussed in chapter 5. Views are invited on the following questions:

i) Effect on BT

• Would any, and if so which, of the options reduce BT’s incentive to invest? If so, would the effect on consumers be outweighed by investment by the new operator to provide the copper loop with higher bandwidth capability?

6.3 Oftel is not currently considering extending any obligations on access to higher bandwidth services to operators other than BT (though this is an issue that may arise in the 1999 EU Review). Nevertheless any obligations on BT may affect other direct operators. Views are invited on the following questions:

6.4 Oftel would also consider the implications of the various options for

competition and choice for consumers. There may be significant differences. For example, under options 1 and 2, if the customer chooses to take higher bandwidth services from the new operator, he/she has no choice of provision for all services (ie higher bandwidth and telephony) other than that provided by that operator. options 3 and 4 provide for only a choice of a single higher bandwidth provider. On the other hand, under option 5 (higher bandwidth indirect access) the customer can choose any number of service providers for higher bandwidth services and narrowband (telephony) services.

6.5 The commercial risk (arising from both the investment costs to provide access to, and uncertainty over take-up of, new broadband services) facing BT and other operators/service providers varies considerably according to the option. For example, options 1 and 2 involve no significant additional investment by BT which simply supplies or leases its access line to another operator who bears all the risk of the additional investment necessary to provide the service to customers. At the other extreme, under options 4 and 5, BT undertakes all the investment in its network, in particular broadband switching and the DSL modems; a service provider offering service over this network makes no up-front contribution to this network investment.

6.6 As well as the effect on operators, the effect on consumers also needs to be considered. For example, under options 1-4, if switching between operators were expensive, the customer might effectively be ‘locked in’ to the new operator and thus vulnerable to exploitative behaviours. This risk appears less under option 5 where there would be very low switching costs and therefore the facility for exploitative behaviour is very limited. On the other hand there may be a trade-off between the extent of customer lock-in and risk. An element of lock-in could give a degree of certainty to offset the risk of significant up-front investment in a market which is only slowly emerging.

6.7 All DSL technologies raise technological issues which are described in more detail in Annexes 1 and 2. Key issues include:

• the length of individual lines that can be served. Since DSL modems use high frequency signals, their amplitude diminishes significantly over distance. This can limit the range of customers that can be served to those nearest the exchange building

• efficient spectrum management to maximise the capacity of the copper cable and avoid mutual interference between services on the same cable. This can involve trade-offs between scope and scale. For example more customers can be served with lesser functionality using HDSL and vice versa with VDSL;

• Options 1 and 2 would both require co-location of equipment in the concentrator building. Whilst not necessarily an obstacle, this could create logistical problems which would have to be resolved, particularly in high density urban exchanges where space is limited. These issues are discussed in more detail in Annex 1.

7.1 This consultation document has addressed issues concerning provision of higher bandwidth telecom services to residential and SME users. It has looked at

• current and future demand for such services

• current and future service supply and the technologies

• the circumstances in which regulatory action might be justified

• the options for regulatory intervention, their implications and how charges might be set.

7.2 By this document Oftel aims to stimulate a thorough debate among all parties (telecom operators, telecom services providers, telecom manufacturers, users and their representative organisations and other interested parties) on a key issue. In the light of responses, Oftel will set out its views, in the context of its policies to promote availability of telecom services and to stimulate the maximum degree of competition in both services and infrastructure to benefit consumers. If Oftel considers that regulatory action is justified – though it must be stressed once more that no such decision has yet been taken – then it will also need to consider carefully the scope for action within existing legislative powers.

Consultation

The consultation will run until 10 March 1999 followed by a further period up to 24 March 1999 during which comments are invited on any submissions made to Oftel during the initial period. Comments are invited in particular on questions highlighted in the text of the document.

Written comments should be submitted to:

Sally Trebble
Consultation on Access to Bandwidth
Oftel
50 Ludgate Hill
London EC4M 7JJ

Fax: 0171 634 8924

or e-mail

Written comments will be made publicly available on Oftel’s website except where respondents indicate that their response or parts of it are confidential. Respondents are therefore asked to separate out any confidential material into a confidential annex which is clearly marked as such. In the interests of transparency, respondents are requested to avoid confidentiality markings wherever possible.

This document is also published on the Internet. The address for Oftel’s web site is http://www.oftel.gov.uk

Oftel is willing to set up a link between this document on Oftel’s pages and any responses placed on respondents’ own Internet pages. Please contact Lauren Ryner at Oftel on 0171 634 8753 should you wish to arrange this.

Confidential responses should not be sent via the Internet.

Oftel documents are also available in alternative formats. Copies on disk in various formats and in large print are available. We also offer braille and tape copies of the summary on request.

Please contact the Oftel Research & Intelligence Unit on 0171 634 8617, or e-mail , or call Textphone 0171 634 8769 for more information.

Oftel has a free e-mail based mailing list to help people stay informed about the work that Oftel is doing. Each time an Oftel document and/or press release is published and placed on Oftel’s web sitesubscribers to the list receive an e-mail informing them about the document or press release.

1. This Annex considers the spectrum management and other operational issues resulting from the use of DSL modems in the UK’s telecommunications access network. Some questions are posed regarding the criteria necessary for successful implementation.

2. Telephone copper access networks were designed for the conveyance of voice telephony traffic and to support loop disconnect or voice band multi-frequency signalling techniques. They are usually two wire circuits (or loops) terminated at the exchange end at a main distribution frame (MDF) and at the customer end at a network terminating equipment (NTE). Distribution from the exchange to the customer is usually in large cables containing many circuits when close to the exchange with progressive divergence of circuits as the distance from the exchange increases. The final ‘drop’ to the customer’s premise would be a two wire circuit which may be overhead or underground. Access networks are of varying ages, have been subject to variable maintenance throughout their lives and may be poorly documented.

3. The main design considerations for traditional copper networks were the length of the loop, the associated loop resistance and impedance in the voice frequency band. Devices have been designed which utilise modulation in voice frequency bands for the transmission of data (eg facsimile machines and voice band modems). However, the characteristics of the access network sometimes cause problems for the successful operation of these devices. The most recognisable symptoms are reduced data throughput and loss of data.

4. The quality of the end to end connection has a direct influence on the performance of voice band modems and, with the advent of digital connectivity for calls at the exchange layer, most adverse service affecting phenomena occur in access networks. There may be several reasons including poor DC connectivity (eg bad joints, broken cables), long loop length increasing attenuation to a level outside the tolerance of the terminal equipment, and interference. Other factors such as unbalanced two wire circuits can cause additional complications with unwanted signal reflections.

5. Like voice band modems DSL modems operate using modulation techniques to transform digital information into an analogue format which can be transmitted over an analogue medium (eg a copper circuit). DSL technologies are designed to operate at data rates from a few hundred kilobits per second up to several megabits per second. They may be symmetrical devices (ie same data rate in both directions) or asymmetrical (ie different upstream and downstream data rates).

6. Data flows of this magnitude, even with sophisticated modulation techniques, require a wide analogue bandwidth for successful transmission (ie megahertz as compared to a few kilohertz for voice band devices). The capability of the copper loop at these frequencies is vastly different from its voice band performance. The attenuation characteristics become more severe as frequency is increased. There is also a practical limit in terms of the power that may be fed into the loop. These factors have the effect that the distance over which the technology may be exploited is limited. As the data throughput increases (eg ADSL to VDSL) the effective reach of the technology over copper decreases.

7. There is continuing standardisation activity for DSL technologies. This work is in a state of constant evolution as newer technologies to provide enhanced capability become available.

8. POTS may be provided by the use of a splitter and separated voice band wiring at the network termination / modem as in the case of ADSL, or there may be no splitter in the customer premises with conventional telephones and DSL modems being connected to the same internal wiring. These differing configurations give rise to a number of operational issues in the areas of performance, provisioning, commissioning, testing and maintenance.

9. There are several types of interference to be considered in the context of DSL technologies. Some will adversely affect the performance of the DSL modems others may be disruptive in the more general environment in which DSL modems operate. Examples are – electrical noise, cross talk, energy radiation and reception. These phenomena are important, especially if they are not managed, as they have the potential to disrupt the successful transmission of data. Data errors and reduced data throughput may result especially if the extent of errors is outside of the error correction and retransmission systems that may be in use. The effects would be perceived by users as delivery of poorer service quality than expected.

10. Electrical noise could result from problems such as poor jointing along the circuit (eg at the transition from large to small distribution cables), damaged cables, electrical pick up (maybe in the customers premises) and natural phenomena such as lightning. These are not new problems but they may have a greater significance in the DSL environment. Some aspects such as the quality of loops could be addressed by the loop owner before provision. External pick up may be more difficult to manage and will be an in service problem which operators of loops and equipment would have to solve.

11. Cross talk is the leakage of energy causing disruption to received signals from one DSL circuit within a cable to another circuit in the same or an adjacent cable. Crosstalk takes two forms – near end crosstalk and far end cross talk. The problem could be managed by carefully controlling the power on individual circuits and controlling the fill of circuits and hence overall energy within cables carrying DSL. Cross talk problems will be encountered in the field and solutions may require moving circuits within cables or between cables or adjusting transmission powers.

12. Other energy radiation and reception may cause problems. Copper cables and especially overhead drop wires act as a radio antenna and could transmit and receive radio signals in the frequency band used to convey DSL. Received energy could have the effect of disrupting the modulation scheme and the data flow through the circuit. Some DSL technologies use techniques which allow parts of the frequency spectrum to be avoided where there are known ingress problems. Equally the DSL circuit could also be radiating energy which could disrupt other radio services (eg radio amateur transmissions). Again some technologies allow for parts of the frequency spectrum to be excluded. There are limits with the amount of manipulation possible to the DSL modulated spectrum before adverse effects occur with data transmission and throughput. These aspects of radio interference require management and may require new responsibilities to be allocated and identified at a regulatory level.

13. Other things to consider would be other services provided within the access network that may be a source or receptor of interference (eg ISDN) and the coexistence of different DSL types or even the same asymmetric DSL types operating in different directions.

14. The effective management of spectrum issues is a prerequisite for the successful commercial exploitation of DSL technologies. Experience has shown that DSL is susceptible to interference and that service quality will degrade as a result. Control of these problem requires actions at both development and rollout of the technologies, and management of the day to day operational and maintenance environments in which they will operate.

15. Spectrum issues are increasingly being handled as part of the technical standards work for newer DSL technologies. There are also other bodies such as the National Interoperability Consultative Committee (NICC) doing work in this area within the UK. It is imperative that standards work increasingly considers the issues of interference and spectrum management and the development of practical strategies for their resolution as these aspects grow in importance for commercial success.

16. Use of DSL technology in existing copper access networks requires the implementation of new detailed planning and operational rules. If the access network and the rollout of DSL technology are under the control of one entity the implementation and ongoing development of rules and controls is manageable. If responsibilities for ownership of the loop and other aspects of service provision are separated the issue becomes more complex to manage and serious consideration must be given to the split of responsibilities and control between the loop owner and loop user. Implementation of DSL already performed has shown that there is evidence that overfill of DSL in cables can markedly lower workable data rates. There is also evidence that controls may be required in terms of the types of devices and the directions in which they operate on circuits (in the case of asymmetric systems). For example the connection of an ADSL modem in the reverse direction to others in a cable can disrupt or cease service on other circuits.

17. Further industry co-operation will be necessary to address operational issues of this nature (particularly in an environment where loops are directly used by service providers). Consideration would also need to be given to the requirement for guidelines or other regulatory measures to facilitate successful technical implementation.

18. The management of spectrum issues outside of direct interference to other services in cables, etc, requires more thought. Many of these are real radio interference problems. In the normal radio world procedures for handling such problems are understood. How they would be handled in the case of DSL is not so clear and consideration must be given to the creation of rules, handling of complaints and appropriate enforcement measures.

19. It can be seen that a free for all in terms of DSL equipment connected to copper loops could result in a very difficult environment to manage and control with consequential commercial problems. Some controls are necessary in terms of the technologies used, the way in which they are provided and their in service operation. In particular careful attention must be given to the development of planning and operational rules. Also clear focus must be brought to the issue of spectrum management and allocation of responsibilities in this area.

1. The most common uses of HDSL are to provide symmetric, bi-directional, 2 Mbit/s circuits over 2 or 3 metallic pairs. The achievable range is typically 3 to 4 km depending on the cable configuration. The line transmission system is similar to that used ISDN services although the frequency spectrum used is much broader and the data rates higher. The 3 pair application provides a bit rate of 784 kbit/s over each of three pairs in parallel, using a spectrum of 0 Hz to 196 kHz, while the 2 pair implementation provides 1168 kbit/s over each pairs, with a power spectrum of 0 Hz to 292 kHz. Implementation providing 2 Mbit/s over a single pair is not used in the UK. Terminal apparatus supporting the 2 and 3 pair implementations is approved in the UK for connection to baseband leased lines.

2. ADSL is designed for asymmetric services where the transmission rates are different in each direction. In contrast to HDSL, it is specifically designed for operation over a single copper pair. ADSL supports data rates from 16 to 640 kbit/s upstream (user to network) and from 2 to 8 Mbit/s downstream (network to user). The downstream bit rate is limited by distance, with 8 Mbit/s only available up to 1 km cabled distance, decreasing to 2 Mbit/s available at typically 5 km distance. The frequency spectrum used by ADSL is broader than for HDSL, covering 4 kHz to 700 kHz. ADSL will operate over the same access line as a POTS voice service although filtering, using a line splitter, is required both at the local exchange and the customer premises to separate the two service.

3. VDSL is a newer technology than HDSL or ADSL and is still under development. Designed for use over a single copper pair, bits rates of 12, 25 or 51 Mbit/s are specified for downstream operation and between 1.5 and 2.3 Mbit/s upstream. As a result of the high data rates, the transmission distance is significantly limited over that which is achieved by HDSL and ADSL. As such, VDSL is intended to be used as part of a fibre to the cabinet deployment, with VDSL being used over the final 1 km or so of a of a typical network installation. The power spectrum is much broader that ADSL or HDSL although it is likely to exceed 10 MHz.

4. DSL-lite is a recent development, being a cut down version of ADSL intended to reduce costs. Although based on the same principles as ADSL, the data rate is limited to 1.5 Mbit/s downstream and 512 kbit/s upstream. DSL-lite is aimed at the high speed Internet access market rather than the carriage of video services. Like ADSL, DSL-lite is also intended to support the simultaneous use of POTS and data services. The cost is reduced as a result of this lower data rate and also by the removal of the line splitter at the customer’s premises used to separate the POTS delivery from the data delivery. This has resulted in DSL-Lite also being known as ‘splitterless ADSL’. Prototype systems are beginning to emerge, although the actual performance, data rate and range are still being characterised.

The options were described in Chapter 5 and more technical background is provided in this Annex. The options are classified with reference to the nature of the access provided according to the Open Systems Interconnection (OSI) model.

click here to see the model

In this option, the copper pair from the local exchange (actually more correctly described as the local concentrator building in most cases) to the customer is provided to the other operator to incorporate into their network. BT would remain responsible for the physical integrity of the circuit and no more.

Option 2: Partial Baseband Leased Circuit (Layer 1 analogue access)

click here to see the model

This form of unbundled loop is different from that above, in that the circuit remains part of BT’s licensed system (its ‘Applicable System’). The other operator leases a Baseband Private Circuit extending from the Network Terminating Point (NTP) at the customer site to the NTP at the local concentrator building, most probably at the Main Distribution Frame or some other distribution frame convenient for the attachment of the other operator’s collocated equipment. BT would remain responsible for the nature and quality of the communication service provided across its network. In accordance with the new Radio and Telecoms Terminal Equipment Directive (R&TTE) which comes into force on 1.1.2000, BT would have to describe the type of network interface provided and state the conditions required to ensure there could be no harm to the network, where these are agreed to be ‘Essential Requirements’. This might require a system which goes beyond the traditional unconditional attachment system to which we have become familiar, whereby any customer can freely attach any approved apparatus. To the extent that interference depends on the nature and density of other services on the same copper cable, it might be necessary to have a system of ‘conditional attachment’ for higher bandwidth devices, such as ADSL modems. A set of such apparatus would be ‘approved’ as now (but increasingly by manufacturer self-declaration under the new R&TTE system) but might additionally require registration with BT so that any interference impact could be assessed and mitigated wherever possible. To ensure that BT did not use this as a barrier to others having access to its loops, the system would need to demonstrate that BT was treating its own services on equal terms with others’ and based on transparent criteria identified in advance.

click here to see the model

This option is fairly straightforward, in that it provides a partial digital leased circuit service from the customer to the local concentrator site. As the DSL modems would be part of BT’s system and attached by themselves, they would be in full control of the spectral management of the cables. This option would however require that the range of bitstream circuits made available by BT met all reasonable customer demands in terms of speed and bandwidths. This form of unbundling has been adopted in Canada for higher bandwidth services.

click here to see the model

This is the configuration used in BT’s present North-West London trial. The ADSL lines are connected at the exchange end to DSL Access Multiplexers and the data is statistically multiplexed together using IP or ATM techniques and delivered as an IP or ATM permanent virtual circuit service to the other operator or service provider. In this way, the bandwidth carried across the core network can be more economically dimensioned to meet a required quality of service (eg contention ratio) and avoids expensive broadband circuits to carry individual bit-streams across the network. (Note: because of the advantages of this multiplexing function, it is not thought that a Layer 2 access option would be helpful)

click here to see the model

The configuration of this option is somewhat similar to the previous, except that here the ATM switches are providing call by call selection of the destination, instead of the permanent association in the former. Such a system could support individual selection of service provider points as well as other broadband customers, in a similar manner to the system of Indirect Access used on today’s telephone network. The ATM switches provide ‘Switched Virtual Circuits’.

Intermediate selection of service providers is somewhat more difficult with Internet technologies, as the IP numbering and addressing system doesn’t support Indirect Access using service provider short codes. There are a number of ways around this, using either ATM switched selection and IP over the ATM virtual circuit or other techniques, such as IP tunnelling.

Oftel’s view is that a generic regulatory approach is appropriate to such matters, to ensure consistency and coherence of the regulatory regime and to avoid regulatory obsolescence. The approach should build on competition law, supplemented as appropriate by guidance on interpretation of competition law to gateway and network access issues. Additional sectoral rules may nevertheless be necessary, in limited circumstances, where the interests of the consumer are best served by intervention at some stage in advance of abuse of a dominant position. Such sectoral rules should be based on standard competition analysis which carefully weighs the prospects for competition in the relevant market and related markets with and without intervention.

The question of access to the end user for supply of higher bandwidth services is such a gateway issue. Applying Oftel’s proposed generic approach to this case, intervention by the regulator would be a legitimate response if, on balance, the advantages of intervention outweighed the disadvantages. This would not be the case unless:

• in the event that BT did not permit other operators or service providers to provide higher bandwidth services to end users over its copper access network, there would be a risk of significant restriction or distortion of competition?

Comment: for this test to be satisfied, it is a pre-requisite that there will be a demand for higher bandwidth services at a reasonable price; and that BT’s copper access network is a key delivery mechanism for those services. In that event, it is possible that BT would have strategic reasons either for not upgrading its local access network or for resisting the wishes of third parties to have their services carried over its network. Its dominant position in the local loop would permit the possibility of such a market failure; and

• ex ante intervention (as opposed to reliance on competition law) would be appropriate either because arbitration would be inevitable at a later stage or in order to avoid enduring damage to the prospects for sustainable competition?

Comment: either of the scenarios mentioned in the first indent above would inevitably lead to a complaint which, in view of BT’s dominant position, would need careful investigation. In such circumstances, it benefits consumers to set out rules to prevent abuse of a dominant position, rather than wait for the abuse and then apply the same rules; and

• intervention to restore the prospects of sustainable competition in delivery of higher bandwidth services would not have a countervailing negative effect on the prospects for competition in another market

Comment: this does not appear to be a concern here; and

• intervention would not diminish the prospects of provision of alternative infrastructure to BT’s copper access network for the delivery of higher bandwidth services

Arbitrage – the ability to buy for one price and sell on for a higher price.

Asymmetric digital subscriber loop (ADSL) – a technology that allows the use of a copper line to send a large quantity of data (eg a television picture) in one direction and a small quantity (eg a control channel and a telephone call) in the other

Asynchronous Transfer Mode (ATM) – the internationally agreed basis for broadband ISDN. A technology that enables all types of information (data, voice and video in any combination) to be transported by a single network infrastructure.

Average costs – the total cost of production of averaged over the quantity produced.

Backhaul – conveyance from the supplier to the local exchange

Bandwidth – the physical characteristic of a telecommunications system that indicates the speed at which information can be transferred. In analogue systems, it is measured in cycles per second (Hertz) and in digital systems in binary bits per second. (bit/s).

Broadband – a service or connection allowing a considerable amount of information to be conveyed, such as television pictures. Generally defined as a bandwidth > 2Mbit/s

Concentrator – the part the local exchange which is positioned close to the customers. It is sometimes within the local exchange, and sometimes located remote from the local exchange.

Copper line – the main transmission medium used in telephony networks to connect a telephone or other apparatus to the local exchange. Copper lines have relatively narrow bandwidth and so have limited ability to carry broadband services such as video unless combined with an enabling technology such as ADSL.

Crosstalk – the phenomenon whereby telecommunications signals on one circuit can leak across to another, potentially degrading the performance on the affected circuit.

Deaveraging – the move from a single averaged tariff or charge to separate ones based on differing geographical areas or types of service.

Digital – the coded representation of a waveform by binary digits, as opposed to analogue which is the direct representation of a waveform.

Digital Local Exchange (DLE) – the telephone exchange to which customers are directly connected.

Digital Main Switching Unit (DMSU) – a trunk exchange primarily used for connecting long distance calls.

Equal proportionate mark-up – a method of recovering the common costs of the network. Common costs are recovered from network components in proportion to their long run incremental cost.

Fixed costs – those costs which are fixed irrespective of the quantity produced (or sold). For example, the cost of producing a television programme or channel is fixed irrespective of the number of people who watch the programme or subscribe to the channel. See also marginal cost and average cost.

Forward-looking costs – an assessment of costs on the basis that costs which arise from past decisions should be ignored when calculating th profitability of current and future decisions.

Geographically averaged prices – prices established by averaging the costs of network elements across the country so that customers in different areas of the country do not pay different rates.

Incremental costs – the capital and operating costs that arise as a result of the provision of the ‘increment’. In contrast to fully allocated costs, the incremental costs include only those costs that are caused by the provision of the increment. So long as revenue exceeds incremental costs, the company increases its value by providing the increment.

Indirect access – where a customer’s call is routed and billed through operator A’s network even though the call originated from the network of operator B. (It is the generic term for both easy access and equal access Carrier Pre-Selection)

Integrated Services Digital Network (ISDN) – a network based on the existing digital PSTN which provides digital links to customers and end to end digital connectivity between them. ISDN2 provides a maximum bandwidth of 128kbit/s.

Interactive services – this term covers two forms of interactivity. The first is where viewers use the remote control to click to applications, which are included in the broadcast stream. The second form of interactivity is where the modem is used to communicate with a remote server.

Interconnection – the physical and logical linking of telecommunications networks used by the same or a different organisation in order to allow the users of one organisation to communicate with users of the same or another organisation, or to access services provided by another organisation. Services may be provided by the parties involved or other parties who have access to the network.

Internet – a global network of networks, mainly narrowband, accessed by users with a computer and a modem via a service provider.

Local loop – the access network connection between the customers premises and the local PSTN exchange, usually a loop comprised by two copper wires.

Long-run incremental cost (LRIC) – the cost avoided through no longer providing the output of a defined increment; for example, the cost of call conveyance is the cost which would be saved in the long-run if this service was no longer provided

Main distribution frame – the apparatus in the local concentrator (exchange) building where the copper cables terminate and cross connection to other apparatus can be made by flexible jumpers.

Marginal cost – the cost of producing an additional unit. Where there are economies of scale, the marginal cost will be lower than the average cost. In circumstances where all the costs of production are fixed (eg a television programme) the marginal cost for each additional viewer will be zero

Mbit/s – Mega (million) bits per second. A measure of the speed of transfer of digital information.

Modem – a device which converts digital signals from a data-transmitting terminal into modulated analogue signals which can be carried by a public telephone network.

Narrowband – a service or connection allowing only a limited amount of information to be conveyed, such as for telephony. This compares with broadband which allows a considerable amount of information to be conveyed.

Near video-on-demand – the transmission of a film or TV programme over several channels at the same time but with a short delay (eg of 15 minutes) between the screening on each successive channel to give the customer a choice of viewing times. It aims to approach the functionality of pure video-on-demand which allows the customer complete control over the time the film is watched.

Network Termination Point (NTP) – the edge of a network at which the network is connected to other networks or to terminal apparatus, eg a telephone.

Optical Fibre – cable made of glass fibres through which signals are transmitted as pulses of light. It is a broadband medium that can easily provide capacity for a large number of channels.

Open Systems Interconnection (OSI) model – a standard, created by the International Standards Organisation (ISO) in 1983 which classifies data transfer protocols into 7 layers, according to the function they perform, with a view to promoting compatibility between systems. The raw copper loop is below Layer 1 and is described in this document as ‘Layer 0’.

Partial baseband leased circuit – where a leased circuit extends from one customer to the local exchange and the bandwidth on that circuit extends down to zero Hertz

Powerline – a technology that involves delivering telecommunications services via electricity distribution networks

PTO – Public Telecommunications Operator – network operators providing services to the public with powers granted by the Secretary of State for Trade and Industry under the Telecommunications Act 1984 to enable them to install their systems on public and private land, property etc.

Public Switched Telephone Network (PSTN) – the complete network of interconnections between telephone subscribers.

Radio Spectrum – the range of wavelengths used, for example, for broadcasting radio, terrestrial television and satellite television. Usable wavelength ranges from about 100 KHz to about 400 GHz although there are as yet no broadcasts above about 12 GHz.

Return path – the means by which messages are transmitted back through, for example, a cable TV or telephony system from the customer to the provider of a service. It is the means by which interactivity can be achieved.

Service provider – provider of telecommunication services, or services with a telecommunication service component, to third parties whether over its own network or otherwise.

Spectral management – managing the type and quantity of devices connected to the copper pairs, through analysing the impacts of the power and frequencies transmitted, so as to eliminate, as far as possible, any unwanted interference between services on the cable; and between those services and external radio services. Also, to optimise the effective use of technologies to deliver the maximum overall benefit from the cable concerned, for example, by deploying a higher density of lower capacity devices compared to a lower density of higher capacity devices.

Top-down approach (to modelling of costs) – the calculation of costs by removing from a known total the costs which are not relevant to the activity in question.

Video-on-demand – a programme or film sent independently to a customer in response to his individual request. This contrasts with broadcast television which is sent simultaneously to all customers able to receive it.

Wideband – an intermediate bandwidth without the fuller capacity of broadband