Contents

Key Headline Statistics

1. Summary

2. Market Information

3. Key regulatory and market developments in dial-up (narrowband) Internet access

4. Key regulatory and market developments in broadband Internet access

5. Background and definitions

Key Headline Statistics

Narrowband access
% UK homes with Internet access	45%
% UK SMEs with Internet access	63%
Number of UK homes with Internet access	11 million
Number of UK SMEs with Internet access	2.3 million *
Broadband access
Cable modems
End-users of cable modem services	196,000 (as at end December 2001)
Availability of cable modems	Telewest available to 4.9m homes - 95% broadband capable ntl available to 8.4m homes - 56% broadband capable
DSL
UK households covered by DSL	60% (around 15 million homes)
End-users with ADSL installed	136,000 based on BT's wholesale products (as at 25 January 2002) 10,000 Kingston customers
Operators and service providers that have taken up BT's wholesale ADSL products	200
BT exchanges DSL enabled	1010

* There are approximately 3.7 million SMEs in the UK however, our survey looks at SMEs with between 1-250 employees and a minimum annual turnover of more than £50k.

  1. Summary

• Oftel supports the Government’s aims to make the UK the best environment for e-commerce by the end of 2002 and for the UK to have the most extensive and competitive broadband market in the G7 by 2005.

• Oftel wants to see choice and value for money for all consumers. This includes choice of access speed (high and low-speed access) and services offered.
• Oftel believes that competition is the most effective way of achieving these goals.
• Competition is working:

• In narrowband, UK consumers now have a wide variety of tariffs for dial-up (low-speed) Internet access. These include both pay-as-you-go tariffs and unmetered packages. UK Internet access prices for residential consumers are now among the lowest in the world.
• In broadband, there is competition at the infrastructure level between cable modem providers and DSL, and numerous service providers competing with BT to provide retail DSL services to consumers. Broadband Internet access in the UK is making substantial progress. Oftel is playing an active role in setting the regulatory framework for the broadband market, and is working closely with Industry to pre-empt and resolve disputes.

• Oftel is monitoring closely the evolving Internet access market through quarterly consumer surveys in the UK and a programme of regular international benchmarking.

Key events since the previous brief:

• Publication of Oftel's effective competition review of Internet access statement (29 January 2002);
• Publication of Oftel consumer research into UK Internet access (29 January 2002);

• Publication of Consultation by the Director General of Telecommunications on amendments to the ST FRIACO Direction (28 January 2002);

• Oftel publication of a draft Direction to resolve a dispute between BT, Energis and Thus on xDSL interconnection at the ATM switch (21 December 2001). Oftel is proposing to require BT to provide two new interconnection products using both ADSL and SDSL technology, which should stimulate competition at the wholesale level and increase the type of broadband access services available;

• Oftel publication of a statement and direction on charges for LLU physical and distant co-location (18 January 2002);

• Oftel announcement on proposed measures to place obligations on BT so that other operators can compete more effectively in offering leased lines to businesses (17 December 2001);
• Oftel proposed requirement on BT to carry call traffic from local loop unbundling operators’ equipment in BT’s exchanges across BT’s network and onto the operators’ networks – known as LLU backhaul (18 December 2001);

• BT announcement of self-install wholesale product with a wholesale price of £25 per month (15 January 2002);

• David Edmonds addressed the Internet Service Provider Association on broadband at House of Commons (15 January 2002);

• Oftel determined that operators can have unescorted access to BT's exchanges in order to carry out maintenance on their equipment Escorted access will only be necessary where BT would require its own contractors to be escorted by a member of BT staff (13 December 2001);
• BT introduced Service Level Guarantees (SLGs) for its wholesale DSL products. These will allow service providers to claim compensation where BT fails to meet specified targets for order provision and fault repair (December 2001);
• Publication of Oftel's latest international benchmarking study of Internet access (7 December 2001).

• BT introduced Service Level Guarantees (SLGs) for its wholesale DSL products. These will allow service providers to claim compensation where BT fails to meet specified targets for order provision and fault repair (December 2001);

2. Market information

1. Monitoring the Internet and broadband access market

Oftel regularly monitors the UK Internet and broadband access markets and publishes its findings to aid transparency. Oftel’s International benchmarking study takes place every 6 months. The latest set of results from Oftel’s benchmarking studies of dial-up Internet access, published in December 2001(based on services available in August 2001), includes the UK, France, Germany, Sweden, and the US states of Ohio and California. Oftel’s quarterly market research surveys ask residential and SME Internet users about their use and experience of the Internet, along with consumer awareness and use of broadband technologies.

2. Availability

Narrowband

For residential and business users:

• Dial-up Internet access is available to all UK households and businesses with a fixed telephone line. The vast majority of UK ISPs are available to consumers nationwide, although the cable companies' ISP services are more limited.

Broadband

For residential and business users:

• Cable networks pass approximately 50% of UK households - cable modem services available to around 38% of all households. Telewest services are available to 4.9 million homes, of which 95% are broadband capable. NTL services are available to 8.4 million homes, of which 56% are broadband capable. This equals around 9 million homes.

• 60% of UK consumers and businesses are within the area of a DSL enabled exchange. 90% of those can obtain ADSL services with current technology.

• Digital TV offers one-way broadband - available to 99% households. Two-way satellite is developing.

• Leased lines (symmetric broadband) are available throughout country. Oftel's determination on partial private circuits (see below) should stimulate competition and lower prices

3. Take-up

Narrowband

For residential users (November 2001 survey):

• 45% of UK homes are connected to the Internet; and

• 39% of Internet homes use unmetered packages.

For business users (November 2001 survey):

• 63% of UK SMEs are connected to the Internet (94% medium-sized and 60% small businesses). Three quarters of small businesses used ordinary phone line/dial-up access to connect to the Internet, whilst just a third of medium-sized businesses did so; and
• 37% of SMEs with Internet access use an unmetered package.

Broadband

• Take-up of broadband in the UK is still low, but is growing substantially with an increase of over 500% of users over the last year. There are currently over 146,000 ADSL end-users and 196,000 cable modem end-users.

For residential broadband users:

• Around 3% of homes with Internet access use broadband.

For business broadband users (November 2001 survey):

• The number of UK businesses claiming to use a broadband connection has risen from just over 3% in May 2001 to 6% in November 2001, comprising 5% DSL and 1% cable modem. Industry subscriber figures are unable to show which businesses are using broadband, but assuming that users fall within the criteria of Oftel's sample (1-250 employees, £50,000 minimum annual turnover) figures suggest that 5% of these businesses are currently using DSL or cable modem. This equates to approximately 1% of all small and medium-sized businesses using DSL or cable modem.

2.4 Pricing (December 2001 international benchmarking survey, prices as at August 2001)

Narrowband

For residential dial-up users:

• the price of up to 40 hours per month dial-up Internet access in the UK for residential users compares well on average with prices elsewhere - only Germany is marginally cheaper (by 2%) for off-peak access and only the US is cheaper (by 10%) for peak access; and
• For unmetered access, residential prices in the UK were similar to the US. France, Germany and Sweden do not have widely available unmetered dial-up packages. For France and Sweden this means prices for high usage in these countries are expensive.

For business dial-up users:

• for business metered packages, UK prices are higher than elsewhere; and

• prices for business unmetered packages in the UK are similar to those in the US. France, Germany and Sweden do not have any unmetered dial-up packages making prices for high users in these countries much more expensive. However, in Germany broadband access is cheaper than unmetered dial-up in the UK and US.

Broadband

For residential broadband (DSL and cable modem) users:

• in the UK, the monthly charge for residential higher bandwidth services was around £26, compared to £34 in France, £29 in Germany and £28 in the US; and

• this relatively good position for the UK is due to its cable modem services - a comparison of DSL services only shows services in the UK to be more expensive than elsewhere.

For business broadband (DSL and cable modem) users:

• the results for business were mixed: for a basic broadband service UK prices were lower than in France, close to those in Germany but more expensive than in Sweden and the US; however German prices rose above those in the UK for consumers requiring a minimum bandwidth in excess of 500 kbps (average over both directions).

{Low bandwidth = no minimum kbps, medium bandwidth = 500 kbps and high bandwidth = 1000 kbps. While both France and UK offer services with a downstream bandwidth of at least 1000 kbps, these services are asymmetric and the geometric mean bandwidth is less than 1000 kbps.}

The International benchmarking study is expected to be updated shortly for services available in February 2002, with publication expected in May 2002.

2.5 Further research

In addition to the quarterly consumer surveys, Oftel has recently published research looking at UK residential consumers’ use and perceptions of broadband Internet services, including demand for services, benefits, costs consumers are prepared to pay, driving factors and switching behaviour. Results from this research were published in January 2002 http://www.oftel.gov.uk/publications/research/2002/bban0102.pdf

Oftel is also proposing to carry out an additional benchmarking exercise to establish whether, and if so, why, UK consumers are making more or less use of Internet broadband access than other countries. The results are expected to be available early next year.

3. Key regulatory and market developments in dial-up (narrowband) Internet access

3.1 Current technology

The UK has a vibrant dial-up (also known as ‘narrowband’) ISP market with both pay-as-you-go and unmetered packages available to consumers. Industry sources estimate that there are over 400 ISPs operating in the UK. Unlike much of the rest of Europe (including Germany and France), an offshoot of the incumbent does not dominate the competitive UK dial-up retail market. Over 80% of online households and 76% of SMEs with Internet access use a dial-up PSTN connection to the Internet. A further 9% of households and 23% of SMEs access the Internet via a dial-up ISDN line.

3.2 Current product offerings

There are a number of dial-up Internet access packages available to both residential and business consumers. These include:

• Metered (pay-as-you-go) Subscription + cost of calls or No subscription - cost of calls only

• Partly unmetered Subscription + free usage at certain times/for a
certain amount of time + call costs at other times

• Fully unmetered Subscription + unlimited free usage + no call costs

Metered

The UK pioneered the pay-as-you-go model, which has been copied by many other countries. Packages are now available which offer consumers Internet access at rates below the price of local-rate voice calls. Some packages include a monthly subscription fee in addition to the cost of calls, whereas others are ‘subscription-free’.

Subscription-free Internet access led to a rapid growth in the number of Internet users in the UK, and is likely to remain a good option for occasional or light users, and those who do not want to commit to a contract. However, the number of consumers using pay-as-you-go packages has fallen as more unmetered services have become available. In November 2001, 61% of Internet households were using metered packages to access the Internet (21% subscription-based, 40% subscription-free).

Unmetered

Unmetered packages can be fully or partly unmetered and have been available for some time. However, the availability and take-up of unmetered packages has grown significantly over the last 12 months. This is partly the result of Oftel’s directions requiring BT to make available unmetered wholesale Internet access products (called FRIACO, see below). This has allowed more ISPs to compete in offering unmetered access and offer greater choice to consumers. Several ISPs offer FRIACO-based, fully unmetered retail packages for around £12.99 - £14.99 a month.

BT’s SurfTime Internet access products include unmetered Internet calls for a fixed monthly fee, as well as offering cheaper pay-as-you-go prices and discounted telephone calls. However, they do not include the costs of Internet service provision: in addition to SurfTime, consumers need to purchase Internet service provision from a participating ISP.

The Cable operators also offer their customers unmetered Internet access. Some of these unmetered packages require customers to spend a certain amount of money on their telephone calls each month.

In November 2001, 39% of Internet homes claimed to use some type of unmetered access (28% fully unmetered and 11% partly unmetered). Oftel estimates that three and a half million customers already subscribe to unmetered packages.

3.3 Alternative means of dial-up Internet access

Mobile

The mobile phone will be another important technology for accessing the Internet (70% of the UK population are mobile subscribers). Services like these are already available - Oftel research shows that 7% of UK residential consumers owns a WAP mobile phone. With the introduction of ‘2½ G’ technologies providing higher data rate communications, WAP services are becoming faster and therefore more user friendly.

So-called "2½ G" technologies, such as General Packet Radio Service (GPRS) which allows packet data transmission on GSM networks have been deployed by BT Cellnet and Vodafone. GPRS data rates will be up to 40kbps initially. BT Cellnet launched the first GPRS service to business customers in June 2000. BT Cellnet and Vodafone now both offer consumer and business GPRS products. Orange already offers a High-Speed Circuit Switched Data (HSCSD) product to business customers, which provides data rates of 28.8 kbps.

Television

Access to the Internet via the television is likely to become increasingly common as web-enabled TV set-top boxes and games consoles become more popular. Consumers can also buy web-enabled TVs (for example, the Bush TV that simply uses the TV as a monitor). These devices are already available and are being used by a small number of consumers. Accessing the Internet in this way may be more convenient for some people who cannot afford, or do not like the complexity or using a computer. Latest published figures show that over 8.5 million UK households have digital television. For more information on satellite access see satellite broadband below.

3.4 What is Oftel doing?

Oftel has taken action in a number of areas relating to dial-up Internet access to ensure fair competition.

3.4.1. Effective competition review of dial-up Internet access

Oftel published its final conclusions on effective competition and appropriate regulation in dial-up Internet access on 29 January 2002. This major review assessed levels of effective competition in four different markets: retail Internet service provision; wholesale call origination; wholesale Internet call termination; and wholesale Internet connectivity.

The review concluded that:

• the retail Internet access market is effectively competitive. A wide range of metered and unmetered services are available to UK consumers at low prices. However the review identified scope for improving consumers' understanding of the market. In the first half of 2002, Oftel will publish a new consumer guide to help people choose the right Internet access service to meet their needs.

• the wholesale call origination market is not effectively competitive. BT has market power and an estimated market share of over 80%. Network charge controls and requirements on BT to provide wholesale products remain necessary to protect consumers and enhance competition;

• the wholesale Internet call termination market is not effectively competitive and BT has market power. Existing controls in this area will therefore remain in place. BT and the industry are currently negotiating a wholesale IP interconnect product that could affect market structure. Oftel is working hard to facilitate a successful outcome (see FRIACO, below); and

• wholesale Internet connectivity is an effectively competitive market. Wholesale prices are falling with a considerable number of suppliers with no one operator having market power.

Oftel carries out effective competition reviews to assess the level of competition in a particular sector and to ensure that regulation is appropriate. Oftel has measured levels of competition against a number of indicators including price, consumer behaviour and market shares

3.4.2 FRIACO (flat rate Internet access call origination)

On 28 January 2002, Oftel published proposed changes to wholesale unmetered Internet access (ST FRIACO) arrangements, Consultation by the Director General of Telecommunications on amendments to the ST FRIACO Direction. Oftel is proposing that BT should offer payment terms for unmetered access that are the same as those for metered access. Currently, an operator has to pay BT in advance for unmetered capacity, whereas metered capacity is paid for in arrears. Other issues covered in the consultation include the circumstances in which BT must increase network capacity to handle Internet traffic, and BT's ability to charge for the routing of calls within its exchange.

The consultation period runs until 25 February 2002.

Oftel is facilitating further industry discussions on the feasibility of enhancements to the existing FRIACO products and on the development of a new IP interconnection FRIACO product . IP interconnection would provide a more efficient means for operators to connect to BT’s network and has been recognised as the best long-term option for handling the growth in dial-up Internet traffic. In addition, Oftel is reviewing the FRIACO adjustment ratio, which is used to calculate the price of FRIACO.

Background

In May 2000, Oftel made a direction requiring BT to make available an unmetered wholesale Internet access product (called FRIACO) to enable other network operators to offer their own unmetered Internet access products in competition with BT. In February 2001 Oftel required BT to offer other network operators a new wholesale unmetered Internet access product known as ST FRIACO (Single Tandem FRIACO).

The UK was the first European country to introduce FRIACO and it has led to some for the cheapest prices for Internet access in the world. Over four million UK homes now use unmetered Internet access.

Oftel Internet Forum

In order to communicate with the Internet community more effectively, Oftel established a dedicated forum called the Oftel Internet Forum (OIF). This supplements Oftel’s existing regular meetings with key companies, trade bodies and consumer groups. Oftel uses the Forum to gain opinions and ideas about key regulatory developments. It is also used to inform the Internet community of key regulatory developments. The OIF meets about four times a year, each time addressing a particular issue.

Minutes of previous meetings:

19 September - ISPs' terms and conditions

23 March 2001 - Internet consumers - well informed and adequately represented?

4.1 Overview of the UK broadband market

The UK has one of the most competitive marketplaces in Europe for broadband, with competition at the infrastructure level between cable providers and DSL and numerous service providers competing with BT to provide retail DSL services to customers. Operators have the choice of local loop unbundling, shared access, wholesale services and now xDSL interconnection services with which to deliver broadband over BT’s network, while we have been careful to ensure that incentives to invest in alternative infrastructures are not undermined.

There is also some limited provision by fixed radio that, together with mobile radio and satellite technologies, should in future also be able to deliver broadband services more widely. Larger business users access broadband services via leased lines.

Downstream data rates (from the network to the customer) are usually higher than upstream rates (from the customer to the network) since the kind of information that needs to get to the user - including still and video images and sound - requires a higher data rate. Data rates on the upstream path can be smaller since user responses usually involve small quantities of data only e.g. text.

4.2 Oftel's broadband strategy

In order to provide a focal point for its work on regulation in broadband markets going forward, Oftel has established a new broadband programme. The aim is to develop and apply Oftel’s strategy in relation to broadband and co-ordinate Oftel’s approach to broadband to ensure that all decisions made are coherent and contribute to Oftel’s overall aim of achieving effective competition in broadband markets.

Oftel’s broadband objectives are:

• effective and sustainable competition in the provision of broadband access and services (evidenced by no operators having significant market power in broadband markets);
• swift and firm corrective action in the event of anti-competitive practices;
• a high level of consumer awareness of the nature of broadband services and choices available; and
• a regulatory framework which is conducive to further investment in broadband and roll-out to remote areas of the country.

Oftel's broadband strategy statement is available at

http://www.oftel.gov.uk/publications/broadband/other/stratb1201.htm and is discussed further in Oftel’s draft Management Plan for 2002/3 at http://www.oftel.gov.uk/publications/about_oftel/2001/man1201.htm#2

4.3 Broadband Cable

Both Ntl and Telewest offer high-speed Internet access over their cable networks via cable modems. Data rates are 512kbps downstream and 128kbps upstream.

Telewest charges £50 connection and a monthly fee of £33 or £25 if you subscribe to other Telewest services. Ntl charges £25 for installation and either £150 for the modem and a £20 monthly fee, or a monthly charge of £25 including the cost of the modem. Customers can also pay around £30 per month to receive telephone and digital television services bundled with broadband Internet access.

Most of Ntl and Telewest’s cable networks are broadband ready, but not all. Both operators are working to upgrade their networks where necessary. The availability of NTL's service has increased as the service has been made available to 500,000 more potential subscribers in the South East by the end of 2001. NTL's availability has now increased to 56% from 50%.

According to publicly available figures at the end of December 2001, Ntl has around 101,000 customers of their cable modem service (up from 52,000 in July 2001) while Telewest reports that it has around 95,000 cable modem customers (up from 38,000 in July 2001).

4.4 Digital subscriber line (DSL)

DSL creates a high-speed digital connection over an existing telephone line using a pair of modems, one at the user end and the other at the Exchange. DSL is the major competing access technology to broadband cable.

4.4.1 Competition between service providers: BT’s wholesale Asymmetric Digital Subscriber Line (‘ADSL’) Service

The downstream data rate of ADSL is much higher than the upstream data rate. DSL is a distance-dependant technology, which means that it is normally available to those consumers who live within 3.5km of their local exchange.

BT's key products are:

• IPStream 500: an entry-level ADSL product aimed at the residential market. It uses rate adaptive technology to extend the range from 3.5km to 5.5km from the local exchange at the expense of slower upstream speeds.
• IPStream S: available in 500, 1000 and 2000 kbps variants. Its higher prices and better service quality means that it is aimed at the SME market. The S 500 product uses rate-adaptive technology to extend the range from 3.5km to 5.5km from the local exchange at the expense of slower upstream speeds.
• VideoStream: enables the provision of video-on-demand services.
• DataStream: enables the provision of IP-based networks, such as corporate intranets.

There are around 200 operators, service providers and corporates that have signed a contract for BT’s wholesale ADSL products, including BT’s own service provider, BTOpenworld, which Oftel estimates has around 50% of the market. The number of end users with ADSL installed (using BT or a BT re-seller) is increasing at a rate of around 10,000 per month and stood at 136,000 as of 25 January 2002. Around 30% of these end-users are businesses.

Kingston Communications introduced its own wholesale ADSL product, RapidTime, on 4 October 2001. The product is currently only offered by Kingston’s own ISP, Karoo. There are a further 10,000 ADSL end-users who are customers of Kingston Communications.

BT has enabled 1010 exchanges covering 60% of households for the delivery of ADSL wholesale products (up from 839 exchanges covering 50% of UK households in May 2001). BT has made no commitments regarding roll-out past this date though is working with development agencies to develop broadband services in rural areas. Information on rollout is available at www.bt.com/broadband

The launch of ‘rate adaption’ on further BT wholesale DSL products has improved the reach from exchange buildings from 3.5km to 5.5km. Rate adaption is now available with wholesale products used to supply businesses as well products for residential customers. This increases the number of consumers able to obtain DSL services from 70% per local exchange to 90%.

On 1 September, BT reduced its wholesale monthly rental charge for IP Stream 500 from £35 to £30 a month to enable BT’s wholesale customers to stimulate take up by end users. The connection charge for VideoStream was also reduced from £625 to £50 for 6 months from 1 October 2001.

Wholesale rental charges fell further on 15 January when BT introduced self-install variants of its IPStream products, called IPStream Home & Office. Connection charges were reduced to £50 (ex VAT) with monthly rental charges starting at £25 (ex VAT) for IPStream Home. However, the end-user must also buy or rent a DSL modem.

More details on future developments, pricing and what Oftel is doing are available in Oftel's ADSL factsheet, http://www.oftel.gov.uk/publications/local_loop/adslsheet/index.htm

4.4.2 Local Loop Unbundling ('LLU')

LLU enables competing operators and service providers to create their own ADSL products rather than having to buy BT’s ADSL products on a wholesale basis. Under LLU, operators and service providers are able to install their own equipment in BT's exchanges in order to offer their own broadband services to end users.

The LLU condition in BT's licence came into force on 8th August 2000. This sets the legal framework and obligations on BT and gives Oftel powers to act if problems occur. In addition, the EC Regulation on LLU came into force on 2nd January 2001. Since then, there has been an intensive programme of work by BT, other operators and Oftel to set the technical and operational framework for the LLU process. Where necessary, Oftel has been fully prepared to act speedily to resolve any disputes.

Oftel has recently issued a number of documents relating to LLU. In summary these are:

• Direction on BT’s service level agreement.
  http://www.oftel.gov.uk/publications/broadband/llu/sla1101.htm

• Direction on access to BT’s exchanges by third parties http://www.oftel.gov.uk/publications/broadband/llu/escac1201.htm

• Draft direction on backhaul
  http://www.oftel.gov.uk/publications/broadband/llu/back1201.htm

  LLU backhaul is a wholesale service, which provides a link between an operator’s equipment at a BT exchange and an operator's point of interconnection with BT’s network. Oftel is proposing that BT be required to provide backhaul services at a cost oriented price.

• Direction on certain of BT’s charges for distant and physical co-location
  http://www.oftel.gov.uk/publications/broadband/llu/llup0102.htm

  Oftel issued a final statement and direction on certain LLU charges for physical and distant co-location on 18 January 2002. The direction reduces the charges BT can levy for escorted access, reduces the charges for the MPF line characteristic check, sets a pricing methododolgy for external tie cables and removes a contingency charge from the price of external tie cables.

  For more details on what is happening on LLU and what Oftel is doing, see Oftel's Local Loop Unbundling Fact Sheet, http://www.oftel.gov.uk/publications/local_loop/llufacts/index.htm

4.5 Leased Line Access

Leased lines are permanent high capacity telecommunications links supplied by network operators to predominantly business users, providing dedicated capacity to the user. Operators and services providers also use leased lines to supply, for example, backhaul for mobile networks and connections to the Internet for Internet Service Providers. Leased lines may be provided at a variety of bandwidths. These range from analogue to digital circuits up to 622 Mbps.

Oftel initiated a review of the national leased line market as a result of concerns about the extent of competition in this market (particularly on the wholesale side). In August 2000, Oftel published a consultation document on national leased lines, which found the market not to be effectively competitive. In the light of responses to the consultation document and a request from Energis for a direction in relation to permanent private circuits (PPCs), there have been several major developments in Oftel’s national leased lines policy:

1. Following consultation, Oftel issued a final Direction to BT on 29 March 2001 allowing BT eight weeks to conclude negotiations with ten operators regarding the provision of cost orientated PPCs at all bandwidths. The Direction allowed BT a further six weeks thereafter to make the products available to all Annex 2 operators. Constructive negotiations between BT and OLOs continued past the initial eight week stage and resulted in the OLOs signing commercial agreements with BT for the provision of PPCs.

2. BT launched PPCs on 1 August 2001 and since then, operators have applied to migrate approximately two thirds of the retail private circuits which were eligible for migration to the wholesale product. The availability of wholesale PPCs at all bandwidths makes it possible for some operators to achieve cost savings of over 30%.

3. Following the launch of PPCs on 1 August , Oftel received requests for determinations on a number of issues from eight of the OLOs. Oftel decided to deal with some of the issues on a `fast track' basis and published a draft Determination on them on 17 December 2001. The remaining, more complex issues are currently under consideration and Oftel aims to publish a second draft determination shortly after Easter 2002.

Oftel will publish a final statement on the state of competition in the leased lines market in Summer 2002 once the second Determination has been made final. The statement will include Oftel’s conclusions on the need to regulate wholesale prices on some or all partial private circuits, in the light of developments following the March Direction and Oftel’s decisions on the most recent disputes.

4.6 Broadband Fixed Wireless Access

Broadband fixed wireless access ('BWA') allows high-speed data connections using radio links between an aerial located on the user's premises and a base station, rather than using a telephone line or a cable television network.

Tele 2 currently offers commercial BWA data-only services for business and residential users in the Thames Valley, (Reading, Wokingham, Bracknell, Windsor, Slough), Leicester, Nottingham, Coventry, Leeds, Bradford, Uxbridge (including Heathrow), Crystal Palace (including Croydon) and Bristol using spectrum at 3.4GHz. Additional cities due this quarter are Birmingham, Bath and Sheffield. Tele2 aims to enable all 40 major urban areas in the UK - 65% of the UK population -by 2003.

In January 2002, Tele2 announced it would provide broadband in areas currently not served by high-speed Internet access – but only as long as there was proven demand. It is reportedly prepared to rollout its broadband services if at least 100 customers from within a 10km radius area come forward.

The Radiocommunications Agency ('RA') auctioned spectrum for BWA at 28GHz in December 2000. Energis, Norweb, Faultbasic, Broadnet, Chorus Communication and Eircom won licences in seven out of fourteen regions, collectively covering 60% of the UK's population. There were no bidders in the remaining seven regions. There is no current commercial deployment and no times given by the winners as to when they might deploy, although trials have started in at least one area.

The 28GHz licences that were not awarded in the auction will be made available from mid October 2001 at the original reserve prices (varying from £1 to £2 million), and with the same conditions as previously (minimum coverage, no backhaul etc) for 12 months.

Other operators have spectrum that could be used for higher bandwidth fixed wireless access services but deployments have been limited. For example, there has been some trial deployment by Ntl of 10 GHz equipment for its customers

Zipcom (formerly Radiotel) has a FWA licence suitable for narrowband services. Atlantic recently closed their FWA services following administration. The future of Ionica’s 3.4GHz and 10 GHz spectrum is also currently under consideration and a number of FWA licences are expected to be made available.

4.7 Mobile Higher Bandwidth Wireless Access

The Universal Mobile Telecommunication System ('UMTS') is a so-called "third-generation (3G)," broadband, packet-based system to be deployed in Europe for the transmission of text, digitised voice, video, and multimedia to mobile computer and phone users. The likely data rates range from about 144 kbps for fast moving users in rural areas, up to 384 kbps for slow moving users in urban/suburban areas, and perhaps up to 2Mbps for indoor users on pico cells (indoor base stations).

The UK auction for 5 UMTS licences was held in April 2000. The winners of this competition were the existing 4 GSM operators and TIW (which subsequently sold the licensee to Hutchison Whampoa). Due to lack of widespread availability of 3G handsets, commercial services may not be available until well into the year 2002, although Hutchison has stated plans for mid 2002.

4.8 Broadband Satellite Access

At the moment, some satellites in orbit around the Earth can offer broadband services. Data transfer has traditionally been in one direction only (from the network to the end user), however new developments have enabled a satellite return path to be used ('two-way' satellite).

A number of service providers have now launched broadband satellite services in the UK. Bridge Broadband and Dutch-based company Aramiska announced their broadband satellite services aimed at the SME market towards the end of 2001. Aramiska's services start at £99 a month for speeds of up to 256 kbps downstream and 64 kbps upstream, with a further £500 installation and connection fee. It offers a number of service levels at incremental costs each providing more bandwidth. Bridge Broadband offers 3 different service levels starting at £159 a month for speeds of up to 512 kbps downstream and 128 kbps upstream. These tariffs include installation costs.

Reports suggest that Tiscali is set to launch its broadband satellite in the UK in March 2002. TiscaliSat is inviting people to take part in a 3-month trial that will cost £230. At the end of this period triallists can either hand back their equipment or pay £650 to continue using the service. Monthly subscriptions will be £59.99.

BTOpenworld's broadband satellite service is currently undergoing trials in Scotland and Northern Ireland. It offers 2 service levels. The first costs £69.99 a month plus an installation and equipment charge of £899 and the second is £139.99 a month plus £1299 for purchase of equipment and installation. Services will be available to the rest of the country in April 2002.

Both Tiscali's and BTOpenworld's offerings are based on a service from the satellite operator Gilat.

Eutelsat has submitted a proposal to the Department for Education and Employment’s (DFEE) ‘Wired Up Communities’ initiative. This proposal will offer satellite Internet access to homes in Cumbria, using the PSTN as return path.

  5. Background and definitions

5.1 Oftel’s aims

Oftel’s approach is to promote competition in the provision of access to the Internet and broadband services, thereby giving consumers a greater choice, better value and higher quality and spurring take up. Oftel seeks to match the level of regulation to the level of competition in the market, while continuing to protect and inform consumers where the market cannot do so.

5.2 Government initiatives

The Government’s aim is to make the UK the best place for e-commerce in the world by 2002 and to make the UK a leading knowledge economy and ecommerce nation. Major Government targets are:

• UK to have the most extensive and competitive broadband market in the G7 by 2005
• Ensure that everyone who wants the Internet has it by 2005
• Ensure that all Government services are online by 2005

The Office of the e-Envoy (OeE) is leading the Government’s drive to get the UK online and to ensure that the country, its citizens and its businesses derive maximum benefit from the knowledge economy. A UK Online Broadband Stakeholder Group has been set up, chaired by the e-Minister, to assist the Government in the development and implementation of broadband strategy. The group published an initial summary of its recommendations (25 September 2001) to drive forward the rollout of broadband services in the UK.

5.3 Definitions

This brief summarises the key developments in the market for Internet and broadband services in the UK, and describes Oftel’s involvement in these markets. ‘Dial-up’ or ‘narrowband’ Internet access is used in this brief for access speeds up to and including 128 kilobits per second (kbps). 'Broadband' is used in this brief to refer to higher bandwidth, always-on services, offering data rates of 128 kbps and above.