Oftel's broadband and Internet brief - April 2002

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

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:

• BT announced that it will enable 100 more exchanges (to add to the existing 1010) by the end of May 2002, increasing coverage to 66% of UK households. BT is considering the potential of a further 500 exchanges (8 April 2002)
• Oftel published guidance for industry on Voice over IP (2 April)
• Oftel issued non-infringement decisions in the Competition Act investigations that it opened following complaints that BT’s wholesale pricing for IPStream and DataStream was anti-competitive (28 March 2002)
• Oftel published final direction setting out the charges for MPFs (loops) and internal tie cables (28 March 2002)
• BT announced reductions of up to 50% in the wholesale charges for a number of its ADSL products, cutting the monthly rental for its residential wholesale product to £14.75 (ex VAT). These prices changes take effect from 1 April 2002, while those for its other products take effect from 29 April 2002 (26 February 2002)

• Oftel published consultation on review of adjustment ratio for DLE FRIACO (20 February 2002)

2. Market information

2.1 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 six months. The latest set of results, 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. the study is expected to be updated shortly for services available in February 2002, with publication expected in May 2002.

Oftel’s quarterly market research surveys ask residential and SME Internet users about their use and experience of the Internet, as well as consumer awareness and use of broadband technologies. The next set of results, for February 2002, will be published towards the end of April 2002.

2.2 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 and cable modem services are 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 also developing, offering the potential to reach those parts of the UK outside of the reach of an ADSL or cable modem connectivity solution.

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

2.3 Take-up

Narrowband

For residential users (February 2002 survey):

• 46% of UK homes are connected to the Internet; and

• 43% of Internet homes use unmetered packages.

For business users (February 2002 survey):

• 59% of UK SMEs are connected to the Internet (94% medium-sized and 58% small businesses). 69% of small businesses use an ordinary phone line/dial-up access to connect to the Internet, whilst around one third of medium-sized businesses do so; and
• 38% of SMEs with Internet access use an unmetered package.

Broadband

UK Broadband end users (ADSL and cable modem)

• Take-up of broadband in the UK is still low, but is growing substantially with an increase of over 500% of users over 2001. There are currently over 211,000 ADSL end-users (200,000 based on BT and 11,000 Kingston) and 328,000 cable modem end-users.

For residential broadband users:

• Around 3.5% of homes with Internet access use broadband (cable modem/ADSL).

For business broadband users:

• Industry subscriber figures suggest that 5% of businesses with Internet (based on the criteria of Oftel's SME survey, see footnote 1)
• are currently using a DSL or cable modem connection. This equates to approximately 1% of all small and medium-sized businesses.

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.

Source: Oftel International benchmarking report, December 2001

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.

Source: Oftel International benchmarking report, December 2001

Broadband

UK cable modem prices have been amongst the cheapest in the OECD. Oftel's international benchmarking study found that in December 2001:

• 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 due to its cable modem services - a comparison of DSL services only, showed services in the UK to be more expensive than elsewhere.
• 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).

Following BT’s announcement that it would reduce wholesale prices for DSL, retailers have begun to announce their prices for the UK consumer - in many cases around £10 less than previous prices and on average ranging between £23 - £30 a month.

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. Some key findings were:

• the main prompt to switching ISP or package was escalating cost, although some narrowband users were willing to restrict access to contain costs;
• some narrowband users had also obtained a second telephone, because usage was blocking their land line for significant periods of time. However some of these users realised that obtaining broadband was a sensible way of rationalising provision for a superior service at little extra expense;
• awareness of broadband, its providers, modes of access and benefits varied. Overall, many thought that broadband services had not been sufficiently advertised; and
• almost all respondents considered broadband as the future mode of Internet access and broadband users could not envisage going back to narrowband.

Oftel is also carrying out an additional benchmarking exercise to establish whether, and if so, why, UK consumers are making more or less use of broadband Internet access than other countries. The results are expected to be available by June 2002.

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. 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

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. Many ISPs offer FRIACO-based, fully unmetered retail packages for around £12.99 - £15.99 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 February 2002, 43% of Internet homes claimed to use some type of unmetered access (32% fully unmetered and 11% partly unmetered). Oftel estimates that four 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 12% of UK residential consumers own 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. Oftel research suggests that 41% of UK homes had digital television in February 2002. 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.

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)

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.

Update

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. The main proposal is that BT should offer payment terms for unmetered access that are equivalent to those for metered access. Currently, an operator has to pay BT in advance for unmetered capacity, whereas metered capacity is paid for in arrears, but the charges set for FRIACO assume equivalent payment terms. Other issues covered in the consultation include the period BT must use when assessing whether there is sufficient spare capacity to accommodate a request for ST FRIACO without rearrangement increase network capacity to handle Internet traffic, and BT's ability to charge for the routing of calls within its exchanges.

During the four week consultation period (ending 25 February 2002), responses were received from eight respondents, one of whom asked for its response to be kept confidential. The remainder of the responses can be viewed on Oftel’s website, at www.oftel.gov.uk/publications/responses/2002/fria0102/index.htm. Following full consideration of all the responses, Oftel expects to publish a Direction with explanatory document in May 2002.

On 20 February 2002, Oftel published a further consultation, reviewing the adjustment ratio for DLE FRIACO. The adjustment ratio is used in calculating the price of FRIACO. The consultation document can be viewed on Oftel’s website, along with two of the three responses received to the consultation (the other response having been marked as confidential). It is anticipated that a Direction will be published in May 2002.

Oftel is monitoring industry discussions on the development of an IP interconnection FRIACO service which could provide a more efficient means for operators to connect to BT's network.

3.4.3 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 next meeting will take place in spring 2002, addressing issues surrounding broadband. Details of the meeting will be available shortly.

Minutes of previous meetings:

19 September - ISPs' terms and conditions

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

4 Key regulatory and market developments in broadband Internet access

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 for the standard services are 512kbps downstream and 128kbps upstream.

Telewest charges £50 connection and a monthly fee of £30 or £25 if you subscribe to other Telewest services. The cost of installation is reduced to £25 for customers subscribing to Telewest's telephone and TV services as well, and is free until 30 April 2002 for existing customers. The standard cost of installation for new customers to NTL is £75 and £50 for existing customers. The monthly charge is £25 for existing customers and £35 for new customers (this includes rental of a phone line).

In April 2002, NTL launched a 1 mbps broadband service, for £49.99 a month. Telewest made a similar move, announcing trials of its 1mbps service in Scotland shortly.

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 300,000 more potential subscribers in London by April 2002. NTL's availability has now increased to 56% from 50%.

According to publicly available figures at April 2002, Ntl has around 180,000 customers of their cable modem service (up from 52,000 in July 2001) while Telewest reports that it has around 148,000 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 now increasing at a rate of around 8,000 per week and stood at 200,000 as of end April 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 11,000 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). On 8 April 2002, BT announced the locations of a further 100 exchanges that it plans to enable by the end of May. It is also reviewing a further 500 exchanges that might be next upgraded. BT is also 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 2001, 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 2002 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.

Charges for IPStream fell further on 1 April 2002 when BT reduced the monthly rental charges for the IPStream 500 and IPStream Home 500 products to £14.75 (ex VAT). Monthly rental charges for IPStream S and IPStream Office were also reduced

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 DSL products rather than having to buy BT’s DSL 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 8 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.

Since the last update, Oftel has issued the following direction:

Direction on the charges for MPFs and internal tie circuits

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:

• 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.

• 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%.

• 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 in summer 2002.

• Oftel will issue a final decision on phase 1 issues in May 2002 and a consultation on phase 2 as soon as possible thereafter, with a view to resolving the dispute in the early autumn.

Further action in the leased line market generally, including conclusions on whether and if so how to regulate some or all wholesale PPCs, will be considered as part of Oftel's implementation of the new European Regulatory framework.

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, Basingstoke, Guildford), Leicester, Nottingham, Birmingham, Coventry, Leeds, Bradford, Uxbridge (including Heathrow), Crystal Palace (including Croydon), Bath and Bristol using spectrum at 3.4GHz. 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. In January and February 2002 Tele2 also offered one month free trials to new customers in new service areas in order to stimulate demand for broadband services.

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 2000 auction are available for auction until mid October 2002 at the original reserve prices (varying from £1 to £2 million), and with the same conditions as previously (minimum coverage, no backhaul etc).

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 later this year.

4.7 Mobile higher bandwidth 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).

Two-way broadband satellite

Two-way broadband satellite offers the potential to reach those parts of the UK outside of the reach of an ADSL or cable modem connectivity solution. A number of service providers have launched broadband satellite services in the UK and though subscriber figures are currently low, they are increasing.

Bridge Broadband ad 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. It hopes to publish subscriber figures around the end of April 2002.

Bridge Broadband offers 3 different service levels starting at £159 a month, including installation, for speeds of up to 512 kbps downstream and 128 kbps upstream. Bridge Broadband is looking for partners to resell its two-way satellite broadband service. It is working on a forecast of around 1,000 subscribers by the end of May 2002.

TiscaliSat is trialing its new two-way, satellite service that will be more widely available when it is launched commercially in spring 2002. The 3-month trial costs trialists £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 has trialled its broadband satellite service in Scotland and Northern Ireland. With the rollout of its services throughout the UK in April 2002, BTOpenworld has reduced its original subscription charges for new and existing customers. The monthly rental for the multi-user product has been cut from £139.99 to £109.99 and the single-user service monthly rental of £69.99 has been reduced to £59.99. The connection charges of £1,299 and £899 respectively for the services both cover the purchase of equipment. All prices exclude VAT. No public figures on subscriber numbers are available as yet.

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

One-way broadband satellite

On 15 April, BT Wholesale announced it would start trials of a new satellite Internet service in May 2001 that will enable high-speed always-on downloads to the end-user - using the PSTN as a return path. BT says that the trial wholesale price is likely to be less than £15 a month to service providers, with a one off connection charge of under £400 for equipment and installation. A further usage charge will be available for customers wanting speeds of up to 4mbps.

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.