Access to Bandwidth:
Delivering Competition for the Information Age
A statement issued by the Director General of Telecommunications
November 1999
Chapter 1 Introduction
Chapter 2 Oftel’s conclusions and the way forward
Chapter 3 Reviewing the policy
Chapter 4 The service to be provided
Chapter 5 Guidelines for operators
Chapter 6 Pricing
Chapter 7 Co-location
Chapter 8 Implementation process
Chapter 9 Oftel’s approach to BT’s ADSL roll-out
Chapter 10 Other Issues
Annex A Responses to July consultation
Annex B Technical explanatory document
Annex C Option 2 Legal analysis
Annex D Option 2 Cost Benefit Analysis
Annex E Option 2 Charge for co-location
S1. This policy statement sets out Oftel’s decision to require BT to make available its local loops to other operators and the timetable on which this requirement will be introduced. Oftel has concluded that this action is necessary to introduce competition into the provision of higher bandwidth access. This is not the end, but the beginning of a process to facilitate the delivery of high-speed information age services to consumers. First BT, Oftel and the industry will need to work together to ensure the successful implementation of this policy. Following its introduction, Oftel is committed to undertaking regular reviews to ensure that the regulatory framework encourages the development of a fully competitive market in higher bandwidth to the benefit of consumers.
S2. High speed, high quality electronic information is essential to the development of the information society in the UK. Always-on unmetered Internet access, interactive home shopping, and video-on-demand are just some of the services that will transform the way we access information and communicate. A variety of new technologies such as digital subscriber lines (DSL), cable modems, broadband wireless, third generation mobile and digital TV offer the opportunity for the widespread delivery of these services.
S3. Oftel expects that, in time, a number of different delivery routes for higher bandwidth will be available. But for now, DSL technology, which enables higher bandwidth access to be delivered over ordinary copper telephone lines, offers the greatest potential to deliver these new services to smaller businesses and the public at large. Currently only BT provides the ubiquitous network that could deliver this access to the mass market.
S4. BT has recently begun trials of ADSL in some areas and has announced its intention for a full launch of these services in March 2000. Oftel welcomes this development. At its launch, BT’s proposal will bring ADSL capability to around 6 million households. This is a significant step forward in the delivery of higher bandwidth services to consumers. Oftel will continue to monitor BT’s roll-out against the requirements of its licence.
S5. But BT alone providing access is not sufficient to ensure competitive prices and choice for consumers, nor to encourage innovation in the provision of access. Giving other operators the opportunity to upgrade the loop and take their own decisions on when, where and how to roll out, is required as well.
S6. Oftel has therefore concluded that BT should make its local loops available to other operators to allow them to compete directly with BT in providing higher bandwidth access. This will be delivered through a form of local loop unbundling referred to in Oftel’s consultations as option 2. This document sets out how and when this new service will be made available and the advantages it will bring to consumers:
S7. This is a key decision for the development of telecoms in the UK. It sets the framework for the competitive delivery of information age services to consumers. Consumers will be able to take a variety of services together with telephony over the local loop direct from new providers. This will lead to competitive prices and greater choice and diversity in the products on offer.
S8. It also presents a major challenge for the industry. BT and other network operators have been working over the past few months on processes to enable the smooth introduction of unbundled loops through option 2. Important inputs are needed from operators by the end of January 2000. The continued co-operation of operators and their participation in industry groups is essential in ensuring that this important new initiative is delivered on time.
Introduction
This document presents Oftel’s conclusions on bringing higher bandwidth services to consumers.
Chapter 2 sets out Oftel’s objectives; the background to the proposals set out in the July Consultation ‘Access to Bandwidth: proposals for action’; the analysis that Oftel has conducted on the costs and benefits, and Oftel’s conclusion that the provision of unbundled loops (option 2) is necessary to promote competition in higher bandwidth access.
Chapter 3 sets out the procedures and timetable by which Oftel will review the effectiveness and continuing appropriateness of the policy and the tests that will be applied to assess whether any change to the policy is required.
Chapter 4 describes the service (partial baseband leased circuit) that BT will need to provide to other operators. It also sets out the legal principles behind the requirement to provide this circuit.
Chapter 5 sets out guidelines for operators on the availability of loops and conditions of use. It gives details of who will be entitled to purchase the service, how the service may be used, and where the service will be made available.
Chapter 6 describes the pricing principles that will apply to provision of the local loop. It confirms the cost-based (LRIC) approach set out in previous consultations, and confirms that there will be no requirement for a geographically averaged tariff.
Chapter 7 gives details of the co-location facilities that BT will be required to offer as an adjunct to the option 2 service, and the pricing arrangements that will apply.
Chapter 8 gives an update on the implementation procedures Oftel has put in place to ensure that option 2 is delivered by the target date of July 2001.
Chapter 9 details the progress made by BT in introducing its ADSL service and Oftel’s approach to monitoring and assessing this service to ensure compatibility with BT’s licence obligations.
Other issues are examined in chapter 10. These include consideration of how best to bring higher bandwidth to rural areas and the economically disadvantaged.
The case for action
Oftel’s objectives
2.1 Higher bandwidth access is of fundamental importance to development of new information society services. Technologies such as DSL, cable modems, third generation mobile, broadband fixed radio and digital TV will enable services such as always-on unmetered high speed Internet access, interactive audio-visual services and video-on-demand to be accessible to a wide audience.
2.2 Enabling these services to develop to their full potential is central to Oftel’s primary goal of promoting choice, quality and value for money for consumers.
2.3 The best way to achieve the variety of services that consumers want at reasonable prices is to promote effective competition in the provision of access to and delivery of these services. Regulatory intervention should only be undertaken where it is justified – that is in circumstances where left to its own devices, the market would not deliver the best outcome for the consumer, and regulation can bring a clear benefit.
2.4 In examining the case for action, Oftel has considered the level of demand in various segments of the market, the supply routes available and whether there are barriers to the competitive delivery of higher bandwidth access and services. The conclusion is that regulatory action is needed to introduce competition into the upgrade of the local loop. This is based on extensive consultation with consumers and the telecoms industry and on further analysis of the risks of action and inaction and costs and benefits.
The importance of the local loop
2.5 Throughout the consultative process the focus has been on the delivery of services over BT’s copper local loop, upgraded to provide higher bandwidth capability. The rationale behind this approach has been that:
2.6 Oftel expects that other technologies also have the capability in the medium term to provide widespread access to higher bandwidth – cable, satellite, and broadband fixed wireless in particular. These technologies and others may in time provide a real alternative to higher bandwidth delivered over the local loop.
2.7 But in the near future Oftel believes that the local loop, upgraded using technologies such as DSL, offers the greatest potential to deliver higher bandwidth access to the mass market. It is for this reason that access to customers through the local loop is the focus of this document. When other technologies, such as those described above, develop to the extent that there is effective competition in the provision of higher bandwidth access Oftel can withdraw from regulation.
2.8 This Statement applies only to BT’s copper loops, and not to local fibre connections, such as those that are supplied direct to some businesses. Oftel does not rule out consideration of fibre in the future, should market conditions suggest it is necessary, but does not consider it appropriate now to take regulatory action in respect of fibre.
The consultative process
2.9 Oftel began its consultation with the publication in December 1998 of an exploratory document that looked at whether there was effective demand for higher bandwidth services from consumers, SMEs, Service Providers and Other Licenced Operators (OLOs) and at whether there were any barriers to the efficient supply of these services. It focused in particular on the supply of these services via BT’s local loop, and proposed five options to tackle any barriers found to exist. These options ranged from unbundling of the local loop (options 1 and 2) to solutions consisting in access to customers over BT’s upgraded network (options 3,4 and 5).
2.10 Responses to the consultation suggested that there was potential demand from consumers for higher bandwidth services and effective demand from SMEs that remained unmet. Service providers and OLOs were also of the view that there was demand from customers that they wished to address, but that they were unable to gain access to these customers. Respondents claimed that BT’s control of local access lines (the local loop) was creating a barrier to the delivery of higher bandwidth services. The remedies that received most support were:
2.11 In July Oftel published a second consultation that detailed these findings and set out Oftel’s preliminary conclusions. It noted that while BT was due to announce plans for roll-out of ADSL that were similar to option 4, this would not in itself be sufficient to ensure the competitive delivery of higher bandwidth access. It therefore proposed that to introduce competition into the upgrade of the loop, unbundling through option 2 should be mandated and made available from July 2001.
2.12 The July document invited comment on the overall proposals and on specific issues such as pricing and availability of unbundled loops. The document also identified technical and operational issues that would need to be addressed before loops could be made available. Two industry groups were set the task of resolving these issues and producing guidelines and recommendations for the implementation of option 2. The groups began work on these tasks in August.
Responses to Oftel’s proposals
2.13 Responses to the July consultation generally endorsed Oftel’s proposals, with useful additional feedback on specific issues:
Network operators
2.14 The majority of network operators agreed with Oftel’s view that there is a need to take some form of regulatory action to meet the demand for higher bandwidth services. They supported Oftel’s proposals for option 2 and agreed that the service should be priced at LRIC with a mark-up for common costs. Many expressed concern that action was not being taken sooner to introduce this service and argued that Oftel’s target date of July 2001 be brought forward to ensure that competition was introduced at the earliest opportunity. A number of operators observed that, particularly in the time before option 2 was introduced, the only access route open to them would be BT’s ADSL offering which they felt to be insufficiently flexible to satisfy their needs.
Service providers
2.15 Oftel’s proposal to mandate option 2 was well received by service providers, as a solution that would allow real competition to develop. It was hoped that option 2 would lead to lower tariff packages than those available through BT’s ADSL product and result in increased choice and value for money for consumers. Again concern was expressed at the proposed timescale for introduction of option 2.
Consumers and consumer groups:
2.16 In general consumers and consumer groups supported the proposal to open the local loop to competition as a mechanism to prevent BT from extending its strong position in the telecoms market into the provision of higher bandwidth. Consumers pressed for Oftel to ensure that all sectors of society were able to gain access to higher bandwidth services particularly those in rural and economically disadvantaged areas.
BT’s response
2.17 In its response BT continued to question the rationale behind Oftel’s proposals and specifically identified the proposed LRIC pricing of the option 2 loops, and use of the loops for telephony and to provide service to large businesses, as areas of concern. BT also proposed that the requirement to provide option 2 be specifically set out in a new licence condition.
2.18 A summary of the responses received is set out in Annex A. Oftel has considered these responses carefully in reaching the conclusions set out below.
Option 4 – Market developments
2.19 Since the publication of Oftel’s July consultation, BT has begun trials of its ADSL service, similar to option 4 of Oftel’s consultation, and has released further details of plans for a widespread roll-out across its network.
2.20 Oftel welcomes BT’s decision to respond to customer demand and offer services providing higher bandwidth access. Oftel recognises that this is a major investment programme, which should make ADSL available to a significant proportion of the population in a relatively short timescale. Oftel will be monitoring the service against the requirements of BT’s licence to ensure that the service is supplied to competing service providers on non-discriminatory terms, and that reasonably required interconnection products are available to operators. Further information on BT’s products and Oftel’s approach to assessing BT’s roll-out is set out in chapter 9.
The case for option 2
2.21 However, while welcoming BT’s roll-out, Oftel does not accept that the availability of BT’s wholesale service, similar to option 4, will in itself deliver a fully competitive outcome in the market for higher bandwidth access and services. For BT alone to roll-out DSL technology is not sufficient because, in the absence of widespread alternative access mechanisms:
2.22 Oftel has considered how these problems might be addressed. There are two main options.
2.23 Firstly Oftel could dictate the roll-out of BT’s product offerings, establish milestones and control prices. But this would essentially mean Oftel substituting its own commercial judgement for BT’s. This is an unattractive option for Oftel, at best a pale substitute for competition, and at worst, could result in significant distortions in BT’s roll-out plans leading to stranded and uneconomic investments. It could also distort the competitive landscape, discouraging others from rolling out in competition with BT.
2.24 Secondly, Oftel could take action to introduce competition into the upgrade of the local loop by mandating option 2. This offers the advantage that it allows operators to make their own commercial decisions as to where to roll out and which technology to use. And, importantly, in allowing others to compete with BT in offering higher bandwidth access, Oftel could hold back from detailed regulation of BT’s ADSL roll-out. BT would be subject to competitive constraints and would be able to respond according to its own commercial judgement. Other operators and service providers would be able to make their own investment using unbundled loops if they found BT’s products unattractive to them.
2.25 Oftel recognises that there are important considerations that need to be taken into account with option 2. There is a risk that if inappropriately applied, particularly if loops were made available at too low a price, it could have the effect of deterring investment in alternative networks. But Oftel considers that this risk can be minimised by careful application of pricing principles.
2.26 Overall Oftel considers that the second of these options, to take regulatory action to introduce option 2, is likely to deliver the best outcome for the development of competition in the provision of higher bandwidth, and will bring the greatest benefits to consumers. It will also place competitive constraints on BT’s offering so removing the need for strict ongoing regulatory constraints that might otherwise be necessary.
Costs and Benefits of option 2
2.27 Oftel has also conducted a cost benefit analysis to assess whether the benefits of introducing option 2 outweigh the costs. Oftel considers that the main costs associated with the implementation of Option 2 are:
2.28 However these costs must be weighed against the prospective benefits that will accrue through the introduction of competition in the provision of higher bandwidth access. The main benefits that would be brought about by competition are that:
2.29 The source of the information used by Oftel to calculate the costs and benefits of Option 2 as set out above is a model of an ADSL roll-out completed for Oftel by Analysys. The result of this cost benefit analysis is to show very significant net benefits of between £120m and £440m, depending on a range of assumptions and the expected timing of competitive alternatives to copper loop technology. The full cost benefit analysis can be found at Annex D.
Oftel’s conclusions
2.30 On the above analysis, Oftel’s conclusion is that option 2 and option 4, the latter delivered through BT’s voluntary roll-out, together present the best way of ensuring maximum availability of higher bandwidth at reasonable prices.
2.31 The availability of option 2 will bring competition into the market for higher bandwidth access, promoting innovation in access mechanisms and allowing operators other than BT to make their own decisions as to when and where to invest and offer service. This will be complementary and present a competitive spur to plans by BT to roll out ADSL to a large proportion of the population. This two-track approach will best meet the needs of consumers and SMEs requiring low-cost access to a variety of higher bandwidth services.
Introducing option 2
2.32 Operators and service providers are keen to see the early introduction of option 2 and some consider the date proposed in Oftel’s last consultation of July 2001 to be too late. But this is the maximum timetable. Oftel would like to see the introduction of option 2 as soon as is practically possible. There are three elements that need to be resolved before it can be successfully introduced:
2.33 Oftel is committed to ensuring that these three elements are completed in time to allow a full trial of the option 2 service by the end of 2000 and launch of the service by July 2001. This will need considerable commitment both from BT and other market players. Oftel is confident that this will be forthcoming and therefore considers the targets are realistic for ensuring a smooth launch. But if the industry discussions progress sufficiently that outstanding issues can be resolved and support systems built in a shorter timescale, Oftel will bring forward the implementation date for option 2.
2.34 Further details of the implementation procedure and current timetables agreed by BT, the OPF and NICC working groups for completion of their tasks are set out in chapter 8. These timetables will ensure that option 2 is introduced by the target date of July 2001, but may be revised if it is found that an earlier implementation date can be practically achieved.
How can operators become involved?
2.35 Full contribution from the industry is essential in ensuring the successful introduction of option 2. Oftel is therefore encouraging operators that wish to make use of option 2 to participate in the Operator Policy Forum focus group looking at operational matters. Operators wishing to do so should contact the Chairman:
Greg Mook, MCI Worldcom on greg.mook@wcom.co.uk
2.36 Additionally operators wishing to participate in or follow the progress of the NICC group looking at technical issues should contact the Chairman:
David Davies, BT on david.r.davies@bt.com
What will be the practical choices for consumers resulting from option 2?
2.37 Option 2 is a service provided by BT to other operators. It is not in itself a service that consumers will buy or have to order themselves. The operators providing the higher bandwidth services will manage all this. However, consumers need to be aware of a number of important options in the arrangements that may be offered.
2.38 Most consumers are likely to take asymmetric DSL services such as ADSL. These services are designed to allow the simultaneous use over a single line of higher bandwidth and analogue telephony. Thus consumers taking service from operators taking option 2 loop, may be offered a package of telephony and higher bandwidth services. A consumer may:
2.39 Symmetric services such as HDSL require a number of telephone lines (2 or 3) to be dedicated to them, and are not designed to run simultaneous with telephony over the same wire. Thus customers taking symmetric services will need to retain their existing telephone line or make an alternative arrangement for the provision of telephony.
Reviewing the policy
3.1 Chapter 2 explains the reasons why Oftel believes regulatory intervention to require BT to make available its local loop is appropriate. However, Oftel hopes that the market position will change over the course of time. Indeed Oftel expects that, through increased competition, the option 2 policy will facilitate this market development. In particular Oftel expects that, with the expansion of the market, alternative technologies such as cable modems, third generation mobile, broadband fixed radio, and access through digital TV will become more widespread and available to a larger proportion of the population. Those who have built out their networks to take advantage of unbundled loops may also at some date choose to build out their infrastructure further to the end-user rather than continuing to rely on BT’s loops.
3.2 For these reasons, and to examine the efficacy of the particular option 2 solution proposed, Oftel considers it necessary to hold a regular review after the introduction of option 2. To provide sufficient certainty for those intending to make investments, Oftel proposes that the first review should be held four years from the introduction of option 2. Pricing is one of the key elements of the option 2 policy and this timing is also likely to coincide with any Price Control Review. Thereafter reviews will be held every two years. The review of Oftel’s Access to Bandwidth policy will examine:
3.3 Taking these factors into account, the review will consider whether any change is needed to Oftel’s policy on the provision of PBLCs at LRIC prices. Any changes to the policy will only be made after due consultation and will be introduced only after an appropriate notice period. (Oftel’s current view is that notice of some 2 years would be appropriate. Existing contractual arrangements would be undisturbed.) Amendments would be appropriate to the market conditions at the time, but measures that might be considered include:
3.4 Oftel understands that it is crucial to the success of option 2 that operators are confident that the product will be available over a reasonable period of time. Oftel is committed to the continued availability of the option 2 service for as long as market conditions suggest that it is necessary.
The service to be provided
4.1 This chapter describes the services that Oftel considers that BT will need to offer operators under option 2.
Partial Baseband Leased Circuit
4.2 Option 2 refers to a type of leased or ‘private’ circuit known as a Partial Baseband Leased Circuit (PBLC). This consists of a copper link extending from the customer premises to the local exchange (commonly referred to as a ‘local loop’). The circuit is partial because, rather than connecting one customer with another, it provides only a portion of the link and is designed for connection with another operator’s system for onward conveyance. The circuit is baseband because it extends over the entire available spectrum, from DC(0Hz) upwards, and can thus be used to provide services that make use of all the available frequencies on the line.
4.3 The operator purchasing the service will be able to install equipment at the local exchange and customer premises to enable the loop to deliver a range of services. There will be no restrictions on the technology used to upgrade the loop, but the operator will need to adhere to certain technical standards to ensure there is no interference between the loops. This is discussed below. In the immediate future DSL is likely to be the technology used to deliver higher bandwidth and other digital services (including digital telephony) over the local loop. The operator may also deliver traditional analogue phone services similar to those currently being provided by BT.
Quality of the circuit
4.4 Loops sold as PBLCs will need to meet a given quality standard to enable them to be successfully upgraded and used to deliver higher bandwidth services. This quality level will be measured in terms of a number of characteristics, which may include the length of the loop, its tendency to radiate unwanted emissions and the material from which it is composed (eg copper). The quality determines whether the loop can support certain technologies, such as DSL, and also determines the performance level achievable over the loop when upgraded. For instance in rural areas because of the longer length of the loops, the maximum data rate using current technologies may be less than 200kbit/s. The NICC group is currently considering what would be an appropriate quality standard to set for PBLCs.
Spectral management
4.5 Because operators could place different types of equipment on the PBLC to provide higher bandwidth, there is a risk that crosstalk between the equipment could cause mutual interference. This risk can be minimised by specifying a spectral management plan and deployment processes for the attachment of equipment onto the loop. The exact specification of the plan will depend on a defined set of objectives. Oftel’s high level objectives are that the plan should be capable of delivering a high level of customer penetration (this is likely to be delivered primarily through asymmetric technologies such as ADSL) and should require the minimum of management processes.
4.6 The NICC DSL task group will develop a precise plan and deployment processes based on these objectives, and will, subject to Oftel’s agreement, publish guidelines, which operators should follow when upgrading the PBLC.
4.7 Further details on line characteristics, spectral management plan and other technical issues are available at annex B.
Provisioning of the circuit
4.8 It is expected that to provide the PBLC, BT will in most circumstances be able to make use of ‘spare pairs’ in its access network, just as it does when customers request a second telephone line in their homes. Once provisioned and tested, the customer can use the new PBLC, as enhanced by the other operator. It will be for the customer to decide whether to cease any existing service(s) that he/she has from BT. In some cases, where no spare pair is available and the customer does wish to transfer all service from the current line, it may be possible for the PBLC to use the existing access circuit, but BT and the new operator using the loop will need to ensure the continuity of 999 access. The important point is that a PBLC does not necessarily need to use the existing customer telephone line, but can use any suitable line that can reasonably be provisioned.
Retaining BT as the telephony provider
4.9 The primary scenario that Oftel has considered is that an operator purchasing the PBLC service will supply both telephony over the low frequency portion and DSL services over the higher frequencies. This is the way that BT itself will be making use of DSL upgraded lines and should bring the maximum economic value from the line.
4.10 However consumers have suggested that they would like to have the option of continuing to take their telephony from BT while using a competing operator for higher bandwidth services. Some operators have also suggested that they would like to focus on the provision of higher bandwidth services, while BT continues to provide telephony.
4.11 In responses to the consultations, operators suggested this could be done through a variant of option 2. This variant could be implemented in two ways:
a) the line is split before the main distribution frame (MDF) and the other operator purchases only the higher frequency portion of the line while the low frequency analogue voice channel is directly routed to BT; or
b) the other operator purchases the whole circuit and splits off the lower frequency telephone band for connection to BT’s exchange. The operator would then resell BT’s service.
4.12 Further details of these options are given at annex B
4.13 Of the two solutions described above, Oftel considers that the first is likely to cause considerable operational difficulties, as there are effectively two companies having simultaneous use of a single line.
4.14 But Oftel sees no reason why the second variant cannot be successfully implemented. Oftel’s current view is that the appropriate mechanism for achieving this should be a private contractual arrangement between BT and the other operator.
Provision of data
4.15 In order to enable operators to plan their roll-out, BT will need to provide to other operators information on the location of their local telephone exchange buildings and the precise areas they serve. BT will also need to provide, on request, feasibility data for each proposed circuit (such as the Red-Amber-Green system used for their own roll-out) so that operators can assess whether they are likely to be able to provide a given customer with DSL.
Legal framework for the provision of PBLCs
4.16 The general requirement for BT to provide the PBLC service will be established through BT’s licence. Oftel expects that further detailed elements, such as those on the quality of the line and adherence to the spectral management plan, will be mutually agreed and covered through contractual arrangements between BT and operators taking the service. Operators will also need to ensure that their service is compliant with any standards laid down by the Radiocommunications Agency on radio emissions levels.
Licence condition
4.17 The PBLC described above is a telecommunication service as defined in the Telecommunications Act 1984. Oftel can therefore require the provision of the PBLC through existing conditions in BT’s licence that relate to the provision of telecoms services on reasonable request. However Oftel recognises that this is an important decision for all concerned, and that the exact nature of the service should be clear both to BT and operators. Oftel is therefore proposing that, for transparency and the avoidance of doubt, a new condition be inserted in BT’s licence that sets out the services that BT will need to provide and any relevant conditions. The insertion of a new condition in BT’s licence will also enable Oftel to set out a clear pricing regime for the service.
4.18 Oftel has already begun discussions with BT about the form this new licence condition will take. Oftel intends to consult informally on this new condition and publish it for formal consultation by April 2000. There will then be a statutory consultation period of at least 28 days, and Oftel will allow another 14 days for comments on comments.
Contractual arrangements
4.19 As with other leased circuits, the PBLC remains part of BT’s network, and is managed and maintained by BT. Thus Oftel expects that the contract between BT and operators taking the service will cover in detail BT’s obligations to test the line, correct line faults and maintain the quality of the line at a given level. These are all necessary elements in the provision of the service as described above. Equally there will be contractual obligations on the operator using the service to adhere to the spectral management plan and deployment processes to prevent cross-talk between lines. These are reasonable measures to ensure that the integrity of BT’s network is maintained and BT would be entitled to disconnect any operator infringing these requirements.
4.20 Details of the contractual arrangements are currently being considered by the OPF focus group tasked by Oftel with resolving the operational issues associated with option 2. Further information on the work of this group and on the NICC group examining technical issues is given in chapter 8 on implementation.
Enforcement
4.21 Oftel will resolve any disputes that arise over the provision of unbundled loops, such as refusal to supply or late delivery of the service, through the usual compliance procedures.
4.22 It is in all operators’ interests to adhere to technical requirements such as the spectral management plan and deployment processes, and Oftel hopes that this will largely be self-policing. But if an issue nonetheless arises – for instance where an operator claims that it has wrongfully been disconnected by BT – the matter can be referred to Oftel.
4.23 Further details on the legal framework are set out in annex C.
Guidelines for operators
5.1 This chapter gives guidance to operators on the conditions that will apply to the provision of option 2. It sets out:
These and other matters will be covered in the proposed new BT licence condition.
Access to loops
5.2 The service will be available to those listed as having interconnection rights and obligations under Schedule 2 of the Telecommunications (Interconnection) Regulations 1997 No. 2931. The rationale behind this is that:
Availability
Will loops be available throughout the UK?
5.3 Oftel considers that competition in higher bandwidth access through unbundled loops should be available in all areas where there is reasonable demand. Some respondents to the consultation suggested that to promote the development of alternative access routes, access to loops should be restricted in areas where other access options such as cable modems or access through BT’s DSL service, were available. Oftel has considered this argument, but has concluded that such a restriction would deprive customers in these areas of the technological innovation and competitive benefits of option 2. In particular:
Are there particular circumstances in which loops will not be available?
5.4 While, as described above, there will be no general geographic limitations on where BT should be required to supply loops, there may be a small number of instances in which BT could argue that it is not possible or reasonable for them to provide the requested service:
5.5 An indicative list of circumstances in which BT might be excused from the obligation to provide telecoms services such as the PBLC is set out in BT’s licence. This is discussed in more detail at annex C.
Use of the loop
5.6 The driver behind Oftel’s proposals is to open up competition in the provision of higher bandwidth services to consumers, and perhaps particularly SMEs. This objective was stated in the original document, and the conclusions set out in this document are designed to achieve it.
Single line telephony only
5.7 On this basis, BT has argued that it should be entitled to impose a contractual condition preventing use of the loop for analogue telephony alone (where the loop has not been upgraded). Oftel’s view is that such a restriction would be inappropriate and unnecessary because:
5.8 For these reasons Oftel does not intend to permit a formal restriction. However Oftel will keep developments in this area under close review. In particular Oftel will consider the likely impact on the use of option 2 loops of any changes made to other regimes such as the indirect access pricing regime. If Oftel were to propose changes in other regimes in the course of the price control review that seemed likely to introduce material distortions into the market through use of option 2 loops for telephony, Oftel would consider introducing some mechanism (such as an additional mark-up on the LRIC basis for pricing option 2) to remove any such distortion.
Multi-line telephony over DSL
5.9 While it is likely that most operators will be offering higher bandwidth access over the loop of one kind or another and that has been the focus of Oftel’s consultations, technologies such as DSL may also be used to provide other innovative services. For instance technology is being developed that will allow the delivery of multiple digital voice channels over a single upgraded line. Or IP could be run over DSL to deliver multiple lines or a combination of telephony lines and higher bandwidth services. While the provision of multiple voice channels is not itself ‘higher bandwidth’, it does make use of the higher frequencies made available through the upgrade of the loop. Oftel is keen to encourage the innovative use of DSL technology to provide services such as these, which may bring to households and small business the benefits that larger businesses currently enjoy. Thus Oftel does not consider at present that there should be any restrictions on the uses to which the upgraded loop may be put.
Use for large businesses
5.10 It is expected that unbundling of the local loop will largely be of benefit to residential consumers and SMEs, but Oftel does not consider it necessary to restrict use of the loops to serve only customers falling into these categories. This is because Oftel considers that:
Pricing of loops
Why set a price control?
6.1 As explained in chapter 2, the rationale for requiring BT to provide option 2 is based on BT’s strong market position in the provision of local access lines and the need to promote competition in the supply of access to higher bandwidth. This strong market position would enable BT, in the absence of controls, to set prices for local access lines at a higher level than they would be in a competitive market and make profits in excess of those an operator in a competitive market could expect. For this reason Oftel has concluded that it is necessary to set the price of these lines. Oftel will set out the basis on which the initial price and any ongoing adjustments will be established in the proposed licence condition. When Oftel consults on the proposed licence condition, it will also publish an indicative price for option 2 loops: the final price Oftel determines will be based on this but updated to reflect latest data. The pricing regime for loops will be reviewed regularly through the procedure set out in chapter 3 and may be adjusted to reflect changing market conditions.
Pricing principles for the loop
6.2 The December Consultation Document set out three options for charges for BT’s loop under Option 2:
6.3 The response to the Consultation Document indicated general support for LRIC as the correct approach to charging for the local loop. This was consistent with Oftel’s own view, and Oftel proposed this pricing regime in the July Consultation Document. After some further analysis of the options, in the light of responses to the July consultation, Oftel has decided to confirm LRIC + as the pricing regime for the local loop.
6.4 The reasoning behind this decision is that:
The calculation of replacement cost includes a return on capital employed that takes account of the risk involved in investing in infrastructure. In a competitive market the owner of the infrastructure would not be able to set prices above replacement cost, since, if it did, entry would be induced and the price of the loop would be driven back down to a level reflecting replacement cost. Thus a price set on the basis of LRIC + reflects the earning power of the loop in a competitive market, irrespective of the services carried over it.
A further issue that requires consideration in establishing the pricing regime is the current structure of telephone tariffs, which results in different customers generating greatly different levels of profitability. The economic value of lines varies considerably with the intensity of telephone usage, under the current tariff structure.
6.5 It could be argued that the charge for each line should reflect its economic value, as given by its profitability, under a pricing arrangement known as Efficient Component Pricing Rule (ECPR). A strict interpretation of this approach would require the setting of a separate price for each individual line and would clearly be impractical.
6.6 The setting of a uniform charge for all lines (although see the section on geographical averaging below) is much more practical and in Oftel’s view, a simple and appropriate approach is to set an average price that reflects the economic value of lines in a competitive market. The economic value of the average line, according to the reasoning above, in a competitive market should be LRIC plus mark-up. This, in Oftel’s view, gives the appropriate charge for an unbundled line under option 2.
6.7 Oftel recognises that it is possible that the combination of a single price for lines, reflecting average profitability, and a tariff that creates varying degrees of profitability per line, might create incentives for operators to target the more highly profitable customers. If this were to turn out to be the case, and if the result were to be that BT was unable on average to recover its costs plus a reasonable return on capital, Oftel would consider whether it was appropriate to address this through an additional mark-up on the LRIC-based price for the use of the loop.
Other elements
6.8 The charge for the loop will reflect both the capital and operating costs associated with providing a line of a minimum quality from the end customer – home or business – to the local exchange or concentrator site. Operators may also need to purchase additional elements to enable them to make use of the loop. These could include, for example, a tie cable linking the operator’s equipment inside the exchange to their system outside. Oftel considers that the basis for charges for these necessary elements should also be the efficient costs of providing these elements calculated on a LRIC basis.
Geographic averaging
6.9 An additional issue in the pricing of the loops is whether a single price should be set for the entire country (geographic averaging) or whether variations in prices should be permitted where these variations reflect different costs in different areas. Oftel proposed in the July consultation that, in the case of option 2 loops, geographic averaging should not be a requirement on BT. The benefit of this approach is that, as individual prices would more closely reflect costs, it would encourage efficient investment decisions, particularly by providers of alternative infrastructures. Following responses to the consultation, Oftel has decided to confirm this approach.
6.10 Oftel expects that the initial price established will be a single average figure. However, it will be open for BT to argue for variations in the price. Clearly BT would need to provide adequate supporting evidence to demonstrate that any proposed price variations did indeed reflect underlying costs.
Pricing of PBLCs in relation to other leased lines
6.11 The pricing that Oftel has proposed for PBLCs (at LRIC) differs from the pricing regime applied to other leased circuits, which are currently not subject to a price control.
6.12 The reason that Oftel has chosen to examine the price of this type of leased circuit separately from others is that the opportunity has only recently arisen for these circuits to deliver higher bandwidth services to consumers and SMEs. Before the advent of DSL technology there was not much interest from operators in making use of the loop as there are other ways, notably by indirect access arrangements, to deliver telephone services to consumers and SMEs. Thus it was not necessary for the local loop to be offered as a leased circuit.
6.13 Now that demand for this type of circuit has arisen in order to provide high bandwidth services, it is necessary to examine BT’s market position in the provision of these new circuits to determine which pricing arrangement would be suitable. Oftel’s conclusion, as is stated elsewhere in the document, is that BT has a very strong market position in the provision of local loops, which would allow it to set prices above those in a market where they were competitively supplied.
6.14 Oftel has therefore proposed that to promote competition in the upgrade of the local loop, and in the long term provide to a stepping stone from which operators can roll out their own infrastructure, copper loops should be made available on a LRIC + basis to other operators.
6.15 This Statement does not address the pricing of other types of leased circuit. Oftel has just published a Statement that examines the state of competition in the leased lines market and announces a review of the regulatory framework relating to national leased lines.
Impact on the price of other leased lines
6.16 As well as upgrading the loop to provide ADSL is possible to upgrade lines (eg using HDSL) to provide symmetrical services. This technology is already used by BT in some circumstances to provide leased circuits of around 2Mbit/s in its ‘Megastream’ product range. It is hoped that the ability of other operators to make use of DSL to provide leased lines will further stimulate competition in the leased lines market and in particular pass on any savings that might be made in using this technology.
Co-location
7.1 In addition to purchasing the PBLC, operators will need to co-locate at or close to the exchange or concentrator buildings to enable them to interconnect with the circuit. This chapter describes the types of co-location that may be available to an operator and the pricing regime that will apply.
Types of co-location
7.2 Co-location takes place when one or more operators rent space at a site to install equipment and make use of centralised facilities. There are three main types of co-location that could be used by an operator taking unbundled loops:
7.3 Oftel considers that, to provide a level playing field between BT and other operators, BT should provide physical co-location, where space is available. This is because the alternatives, in Oftel’s view, do not in all circumstances provide a comparable service. If distant co-location is used, the connection between an operator and the end-customer will inevitably be lengthened, and this could limit the bandwidth that can be provided to end-customers over the loops. Virtual co-location could also be problematic as BT engineers might need to be trained, potentially at considerable expense, to operate equipment that was not familiar to them.
7.4 Some operators may nonetheless choose to use a distant co-location facility, where one is available, because of the greater flexibility it may offer, and Oftel will ensure that this option is also available to operators.
7.5 Operators may also find that virtual co-location is a practical option where the equipment they use does not differ substantially from that used by BT. Oftel expects that a service of this type could develop through commercial arrangements between BT and other operators.
Legal framework for co-location
7.6 BT’s licence obliges BT to provide appropriate points of interconnection, information and other services (such as co-location) necessary for interconnection where reasonably required. Oftel has established that provision for physical and distant co-location is reasonably required in order to enable operators to interconnect appropriately with the PBLC service. Additionally Oftel will set out further specific provisions relating to co-location in the proposed new licence condition. If disputes arise, Oftel’s intention is that these should be resolved through standard interconnection dispute resolution procedures.
7.7 Oftel expects that further detailed arrangements for physical co-location, such as those on security and the provision of power and other essential services to operators will be contained in the contract between BT and the other operator. It is expected that the contract will also detail the process through which BT would give notice of any changes to the co-location arrangements. BT has indicated that it plans to consolidate its exchange facilities in certain areas, and it will need to give adequate notice to operators co-locating within the buildings of any planned closures and the alternative arrangements available.
7.8 The detailed arrangements for co-location are currently under consideration by the OPF focus group.
Availability and use of physical co-location facilities
7.9 As physical co-location space may be limited, Oftel expects that operators using it will need to demonstrate that they are making effective use of the space in conjunction with the purchase of option 2 loops, and not using it unnecessarily for activities that could be conducted elsewhere. Thus it would not in Oftel’s view be reasonable for operators to use space for the installation of switching or independent routing equipment (not included within the DSLAM). This limitation would apply at physical co-location sites, but clearly at an independent distant co-location facility any rules or restrictions on usage would be set by the manager of that facility.
Co-location pricing and recovery of co-location costs
7.10 Since the publication of the July document, Oftel has been considering, in consultation with BT and operators participating in the Operator Policy Forum option 2 focus group, possible pricing arrangements for physical co-location. The issues Oftel has considered include:
7.11 In the light of the analysis produced by Oftel and responses from the OPF group, Oftel has concluded that:
7.12 The full version of Oftel’s paper on co-location pricing is at annex E.
Other costs
7.13 As well as the ongoing costs associated with dealing with operators and running the services, BT will incur costs in setting up the order handling processes necessary to deliver both loops and co-location. Oftel has applied the principles used to examine cost recovery for co-location to the issue of recovery of these additional costs. Using these principles, Oftel has concluded that operators should bear the reasonable costs of Option 2. The reasonable costs of Option 2 are those costs that an efficient operator would bear as a direct result of the introduction of Option 2. Oftel would expect these costs to be calculated on a LRIC basis.
Implementation Process
8.1 Before option 2 can be implemented a number of technical and operational issues need to be resolved. To address these issues two industry groups have been established. The Network Interoperability Consultative Committee (NICC) DSL Task Group will address and give guidance on all technical issues and the Operators Policy Forum (OPF) Option 2 Task Group will address all operational issues. It is essential that these groups work closely with BT, as their output will affect the requirements of BT’s operational support systems (OSS).
The specific issues that are to be addressed by these groups and the impact they have on BT’s OSS, including indicative timescales, are outlined below.
Technical Issues
8.2 The NICC DSL Task Group will produce a spectral management plan for services to be connected to BT's local access cables and this will include connection and deployment processes.
8.3 These rules and processes are dependent on a set of objectives set out by Oftel. These objectives include the aim of a penetration level for upgraded loops that is as high as possible amongst residential and SME customers. Further details of Oftel's objectives are set out in annex B.
8.4 To ensure a speedy introduction of option 2 this group will initially concentrate on frequencies up to 1.1 MHz, which is sufficient for current ADSL technology, while protecting frequencies above this. The final output will cover the frequency range up to 30 MHz. Table 1 shows the agreed work plan for the NICC group. The group will also feed information to BT before the final completion dates so that BT has sufficient time to develop its OSS.
Task |
Date |
| Agree Terms of Reference and work plan for Task Group (Completed) | 20 Aug 1999 |
| Appointed editor for Spectral Management Plan and PBLC Rules (Completed) | 20 Aug 1999 |
| Agree how Spectral Management Plan and PBLC Rules are to be defined and applicability of ANSI T1E1 work (Completed) | Oct 1999 |
| Agree Objectives for developing the Spectrum Management Plan and PBLC Rules (Completed) | Nov 1999 |
| Collect input for Spectral Management User Guide | Jan 00 – Apr 00 |
| Collect input for of Spectral Management Plan and PBLC Rules | |
| Phase 1 | Oct 99 – Mar 00 |
| Phase 2 | Jan 00 – Jun 00 |
| Produce draft Spectral Management Plan and PBLC Rules | |
| Phase 1 | April 2000 |
| Phase 2 | July 2000 |
| Agree (at Task Group
level) Spectral Management Plan, User Guide, and PBLC Rules |
|
| Phase 1 | 30 June 2000 |
| Phase 2 | 30 Sept 2000 |
Phase 1 covers frequencies up to 1.1 MHz (but protecting the use of higher frequencies)
Phase 2 covers frequencies up to 30 MHz
Table 1: NICC DSL Task Group Work Plan
Operational Issues
8.5 The OPF Option 2 Task Group will produce guidelines on processes and procedures for all aspects of co-location and circuit ordering, maintenance and billing.
The output from this group will be a set of documents addressing the following areas.
Overall Process Flowchart
1. Main Contract
2. Product and Service Description
3. Operations and Maintenance Manual
4. Codes of Practice
Spectral Management
Access to BT’s Premises
8.6 Table 2 shows the agreed work plan for the OPF group. As with the NICC group this group will be providing information to support BT’s OSS development before the final completion dates.
Task |
Date |
| Agree Terms of Reference and work plan (Completed) | 14 Oct 1999 |
| Agree document owners (Completed) | 14 Oct 1999 |
| Produce first draft of document headlines (Completed) | 28 Oct 1999 |
| Iterate and develop documents | Nov 99 – Feb 00 |
| Agree Initial Product Definition | 31 Jan 2000 |
| Publish draft documents for comment | 1 Mar 2000 |
| Consider feedback and resolve any remaining issues | Mar – May 2000 |
| Publish final documents | 2 June 2000 |
| Agree Final Product Definition | 2 June 2000 |
Table2: OPF Option 2 Task Group Work Plan
BT’s Operational Support Systems (OSS)
8.7 The introduction of option 2 creates two main new products for BT, the PBLC and co-location space, and a number of related products. The creation of these products and the anticipated demand for them will have a major impact on BT’s existing OSS. The systems that are likely to be affected will include order handling, provision, test and maintenance, fault handling and billing.
8.8 BT has produced a time plan for OSS development that will enable option 2 to be available by July 2001 (Table3). Under this time plan BT will need to begin OSS development in February 2000, and will thus need inputs from the OPF and NICC task groups by the end of January 2000.
8.9 A simplified version of BT’s OSS development time plan is shown in Table3. The four general OSS identified consist of many individual systems, so the completion dates given indicate when all the individual systems will be available.
Operational Support System |
Date |
| Plan and Build Systems | 29 Dec 2000 |
| Service provision | 15 Jun 2001 |
| Test, maintenance and fault handling | 15 Jun 2001 |
| Billing | 15 Jun 2001 |
Table3: BT’s OSS Development Work Plan
Option 2 Trials
8.10 To ensure a smooth roll out of option 2 services a trial programme will be run in parallel with the OSS development. The trial will start in July 2000, finish in June 2001 and will consist of three stages. The first stage will last until December 2000 and will test the plan and build for implementing co-location. The second stage follows on from stage 1 and lasts until March 2001. In this stage OLOs will take charge of a small number of PBLCs to allow technical tests of operators’ DSL equipment and manual trials of the pair provision, test and repair processes. The third stage will be a customer trial and will test BT’s automated ordering and provisioning systems. This will last until the middle of June 2001. If the trials succeed earlier, this timetable will be brought forward.
BT Plan and Build
8.11 To provide co-location space BT will need to plan and build facilities in the exchanges affected. On the timetable outlined above BT should be ready to accept orders for co-location space by 1 January 2001. Oftel is monitoring BT’s progress closely to ensure that, given appropriate inputs from the industry groups, this timetable is met and there are no unjustifiable delays.
Provision PBLC/OLO Installation
8.12 The final stage in delivering option 2 to end-users is for BT to provision PBLCs and for OLOs to install and configure their equipment. BT will be in a position to process orders for PBLCs using automated systems by 18 June 2001.
Option 2 launch
8.13 Completion of the above processes should mean that operators can begin offering services based on option 2 from 1 July 2001 at the latest. If however, progress is faster, this date can be brought forward. On launch of the service, BT has proposed that deployment initially be limited to areas of greatest demand and then phased in to other areas over a period of several months. Oftel will monitor this closely.
Oftel’s approach to BT’s ADSL roll-out
Introduction
9.1 As discussed in chapter 2, many respondents to Oftel’s first ‘Access to Bandwidth’ consultation said that they wanted BT to upgrade its network to provide DSL capability and to provide wholesale products to enable service providers and operators to provide high bandwidth services.
BT’s ADSL products
9.2 In July this year BT announced plans to roll-out ADSL technology. BT has announced the roll-out of three ADSL wholesale products, which are aimed at OLOs and SPs, including BT’s own SP and has just started trials of the products. The trial products are:-
This product enables SPs to provide consumers with video-on-demand. SPs are provided with a high speed connection to BT’s broadband network and their video applications are transported through BT’s network using permanent virtual circuits. The final delivery to the premises of the end-user uses ADSL technology. This service operates at 2Mbit/s. The trial prices charged by BT to SPs taking the wholesale service (all prices quoted are exclusive of VAT) are £625 for the connection charge and a monthly rental charge of £60 per end user served by the SP.
This product is designed to enable OLOs/SPs to develop IP based networks for businesses, for example, corporate intranets. OLOs/SPs are provided with a high speed connection to BT’s broadband network and their applications are transported through BT’s network to the end-user using permanent virtual circuits. The final delivery to the premises of the end-user uses ADSL technology. The end-user can be provided with bandwidth ranging from 500 kbit/s to 2Mbit/s. For the trial the connection charges to SPs are in the range £150-£200 and the monthly rental charges are in the range £82-£106 per end user served by the SP.
This product is designed to enable SPs/OLOs to provide SMEs with high-speed Internet access. BT can provide an ADSL connection between the end-user (the customer of the SP/OLO) and BT’s broadband network as well as a connection from BT’s network to the SP/OLO. The end-user is able to obtain bandwidth ranging from 512kbit/s (downstream) and 256kbit/s (upstream) to 2Mbit/s (downstream) and 256kbits/s (upstream). For connection between the end-user and BT’s broadband network there is a connection charge to the SP of £260 and the monthly rental charges are in the range £89-£133 per end user served by the SP. There are separate charges for the connection between BT’s network and the SP/OLO.
9.3 BT began limited trials of its Videostream and Datastream products on 25 October 1999 and its IPstream product on 22 November 1999. BT intends to launch full products in late March 2000. By this time, BT expects to have upgraded over 400 exchanges which will serve around 6 million homes.
9.4 Oftel understands that BT will shortly announce details of wholesale products that are suitable as the basis of services for domestic consumers.
Oftel’s view
9.5 Oftel welcomes BT’s roll-out plans, which should present a significant step forward in the availability of higher bandwidth services for small and medium-sized businesses and consumers in the UK. Oftel’s aim is to ensure that in providing its ADSL products BT complies with its licence obligations. For example, BT is obliged not to show undue preference to its own SP business or exercise undue discrimination against other SPs/OLOs. BT must also comply with its obligation to provide reasonably required interconnection services.
9.6 Oftel has had a number of meetings with BT to discuss, amongst other things, its systems for handling orders. Oftel also monitored the selection process for the trial participants and will continue to meet with BT to discuss the progress of the trials and its preparations for the launch of the ADSL products next year.
9.7 Oftel has also invited comments on BT’s roll-out plans from operators and service providers and raised the subject for debate in Oftel forums. The two main subjects that operators and service providers have raised are the interconnection arrangements and the pricing of BT’s wholesale products.
Interconnection
9.8 The present trial products can be fully sourced from BT, including the interconnect from the various geographically deployed Points of Presence (PoPs) to the SP. However, operators must be able to make use of their own infrastructure from their own network up to the point of interconnection with BT. Any requests from operators for interconnection at other points that would enable Operators to make efficiency gains through the use of their own networks should be made to BT in the first instance. Oftel will consider any dispute referred to it in accordance with its normal compliance procedures. If demand for connection at another point is reasonable, taking all the relevant circumstances into account, BT would be required to provide the service under its current licence.
Pricing
9.9 Some service providers and operators have expressed concern about the level of BT’s trial prices, outline details of which are given in paragraph 9.2. BT has not yet announced indicative launch prices, but it is expected that these will not differ greatly. Prices for end-users are likely to be higher than these figures as service providers, including BT’s own SP business, purchasing the BT ADSL products are likely to need to add an amount to cover their costs and make a return on the services (such as high-speed Internet access) they provide to customers over BT’s upgraded line. It is however possible that some service providers may also be able to use additional revenue streams, such as online advertising and e-commerce to lower the prices charged to consumers.
9.10 Oftel will continue to monitor the pricing trends and structures that emerge as the trial progresses. However, Oftel’s current view remains as stated in the July consultation document – that price control of BT’s prices for its own ADSL roll-out would be inappropriate. Price control at the start of a high risk and very expensive investment is likely to deter that investment and to limit the roll-out to the detriment of consumers. Instead Oftel wants to encourage roll-out to as wide a coverage as possible. Equally Oftel does not want users to be deterred by high prices – although of course prices must cover costs or otherwise development of competition will be hindered.
9.11 While Oftel does not intend to impose price controls, there are constraints on BT’s pricing freedom. First, under its licence BT must offer wholesale access products to competing service providers on the same terms as its offers to its own service provider business. It must also offer any wholesale access product for which there is reasonable demand. If it did not, Oftel would take enforcement action. Secondly, as stated in the July consultation document, Oftel would be able to take enforcement action if there were any evidence that BT were abusing a position of dominance. Thirdly, the prospect of competition from Option 2 and other competing delivery routes will be a constraint on BT’s pricing behaviour. Oftel expects that prices will fall as take-up increases, as technology develops and as competition grows – from other delivery routes such as cable and from the prospective introduction of Option 2. Any perception that prices for DSL are ‘high’ will encourage faster deployment of these alternatives. Further, it is in BT’s interests to attract as many users as possible – in other words not to deter users by high prices.
9.12 Oftel will look at BT’s prices carefully to ensure that it is complying with its licence obligations. As noted above in 9.12, BT has suggested that apart from subscriptions from consumers, there may be other potential revenue streams, such as revenues from e-commerce and advertising. If BT confirms that it will be making use of these revenue streams to reduce its prices to consumers, Oftel will want to be assured that these revenues are realistically assessed and that BT has fully accounted for its costs.
Other issues
Access to other operators’ networks
Kingston
10.1 Oftel has considered the position of Kingston with regard to local loop unbundling. It has been suggested that, as an operator with significant market power in the Hull area, a similar obligation should apply. Oftel’s preliminary view on this matter is that while Kingston enjoys market power in Hull, as BT does for the remainder of the country, the positions of the two companies are sufficiently different that it should not be assumed that a requirement on BT should automatically be passed to Kingston. The reasons for this are that:
10.2 Oftel will continue to keep the situation under review and will give due consideration to any reasonable demand for access to Kingston loops
Cable and other network operators
10.3 This statement does not cover the issue of whether other operators with local access networks capable of broadband delivery such as cable providers should be obliged to provide access to their end users (through an option 4 scenario) or offer unbundled local loops to competitors. Oftel will be consulting on access to other broadband networks shortly.
Social issues
Broadband access for all
10.4 In their responses to the consultation, consumers stressed the importance of higher bandwidth access being available to, in particular, consumers in rural areas and those on lower incomes. Oftel shares this objective. Ultimately all consumers should have the opportunity to use broadband access to receive the new Information Age services.
10.5 Regulatory action now to require such provision would be premature because:
10.6 Nevertheless Oftel intends to monitor developments closely so as to track progress towards broadband access for all. Other initiatives are also relevant here:
10.7 Oftel is already undertaking a review of the universal service obligation. Oftel has made clear that, while its current view is that including broadband access within the universal service obligation is not appropriate now, it will keep it under close review and will re-examine the case for inclusion in the light of developments in the market.
Effect on existing Universal Service Obligation
10.8 The obligation on BT to supply loops for the provision of the PBLC service does not affect BT’s current universal service obligation to supply telephone lines on reasonable request. Ultimately a change in the competitive landscape might require a different approach to the funding of universal service. Oftel is currently undertaking a review of BT’s universal service obligation and will continue to review the situation in the light of market developments.
Emergency services
10.9 The development of voice telephony over DSL has the potential to bring state-of-the-art digital multi-line telephone services within the reach of smaller businesses and consumers. But a potential problem arises with the fact that DSL is electrically powered at the customer premise and not, as with standard analogue telephony, from the local exchange. This means in the event of a power cut DSL services, including emergency services, will cease to operate. Operators must ensure that customers can continue to receive vital 999 services even when the power fails. This may mean offering customers a traditional analogue line in addition to their voice over DSL service or providing a one-hour battery back-up with the DSL modem.
Responses to July Consultation
A1 In July 1999, Oftel put out for consultation the proposal that BT should be required to permit access to its local loop.
A2 Oftel received over 55 responses to the consultation document from a wide variety of sources including.
- Individual consumers concerned about the price of access to higher bandwidth services.
- Groups with special needs.
- Telecoms advisory bodies and organisations representing rural or economically disadvantaged areas.
A3 On the whole Oftel’s proposals as set out in the consultation document has been well received with the majority of respondents welcoming Oftel’s proposal to mandate some form of access to BT’s local loop (option 2 partial baseband leased circuit as set out in the July consultation document) rather than leave it to BT to offer higher bandwidth services via it option 4 offering (permanent virtual circuit access as set out in the July consultation).
A4 Key issues raised in response to the consultation include
The information below is a brief summary of the responses received.
Network Operators
A5 With one or two exceptions, the majority of network operators that responded to the consultation agreed with Oftel’s view that there is a need to take some form of regulatory action to meet the demand for higher bandwidth services rather than leave it to BT to roll out and develop higher bandwidth services. They suggested that the price for option 2 should be based on LRIC, it should be reviewed sometime between three and five years and should be available to consumers, SME’s and large business users.
A6 The major concern seemed to be that the proposed timetable for the full implementation of option 2 by July 2001 would give BT a head start in the provision of higher bandwidth services. This, they suggested, would serve to reinforce BT’s dominance in the access market. The proposed timetable needed to be brought forward by between six to nine months or BT should be prohibited from rolling out it option 4 product until such time as the option 2 product was available. Operators were also concerned that the price for option 4 based on retail minus was prohibitive and that BT’s products did not give network operators any flexibility in offering innovative higher bandwidth services to customers.
A7 A selection of these comments is highlighted below