Contents

Key headline statistics

Summary

Market information

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

Key regulatory and market developments in broadband Internet access

Background and definitions

Key Headline Statistics

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 Internet access. This includes 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 and prices compare well with elsewhere. 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:

• Oftel issued a Direction requiring BT to provide ATM interconnection to other operators, to enable them to offer ADSL services. BT is also required to run a trial for an SDSL version of the interconnection service (21 June 2002)
• BT introduced a new ADSL order registration system that enables consumers and ISPs to register interest in receiving ADSL services (17 June 2002)

• Oftel issued a final decision requiring BT to make a number of improvements to its wholesale leased line products to promote greater take up of the products by other operators (14 June)

• Oftel published the results of its latest International Benchmarking report (12 June)
• BT enabled 102 more exchanges giving a total of 1,115 enabled exchanges and increasing coverage to 66% of UK households (31 May 2002)
• Oftel concluded that BT’s charges for IPStream and DataStream are not below cost and anti-competitive. Oftel had been investigating the charges following receipt of a complaint after BT introduced special offers and price cuts in October 2001. A similar investigation into BT’s charges for VideoStream was ceased after the complaint about the charges was withdrawn (31 May 2002)
• BT began trials of a one way Internet wholesale satellite service. The one-to-many service allows ISPs to reach customers who are out of range of normal ADSL services. The service provides download speeds of up to 256kbits/s via a satellite dish, with higher speeds of up to 4Mbit/s available on demand (31 May 2002)
• Oftel closed its investigation into BT’s marketing of its ADSL services after finding no evidence of anti-competitive behaviour by BT. Oftel has however published a Statement setting out the policy that it will apply to BT’s marketing and use of the residential blue bill. This Statement can be found at: http://www.oftel.gov.uk/publications/ind_guidelines/mark0502.htm (21 May 2002)
• Oftel published a Direction amending the requirements for provision of FRIACO (15 May 2002)

Market information

Monitoring the Internet and broadband access market

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 May 2002, will be published shortly.

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 can be 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 where broadband cable modem access is available.

• 66% 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 and one-way satellite access is also available, 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

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

• Take-up of broadband in the UK is growing substantially - the number of broadband end users has more than doubled since the end of last year. There are currently over 290,000 ADSL end-users (280,000 based on BT and 10,000 Kingston) and 419,000 cable modem end-users.

UK Broadband end users, end June 2002 (ADSL and cable modem)

For residential broadband users:

• Around 6% of homes with Internet access use broadband (cable modem/ADSL).

For business broadband users:

• Industry subscriber figures suggest that 8% 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 3% of all small and medium-sized businesses.

Pricing

Narrowband (June 2002 international benchmarking survey, prices as at February 2002)

For residential dial-up users:

• UK prices are cheaper than all other countries in the study by at least 9% for unmetered services; and
• For metered usage at peak times, the UK compares favourably with all countries and for off-peak the UK compares favourably with the US and France but prices are above those in Germany and Sweden.

Comparison of residential Internet access prices as at February 2002

Source: Oftel International benchmarking report, published June 2002

For business dial-up users:

• UK prices for unmetered services are well below those in France and Sweden, but above those in Germany and the US; and

• UK prices for metered services are above prices seen elsewhere.

Comparison of business Internet access prices as at February 2002

Source: Oftel International benchmarking report, published June 2002

Broadband (December 2001 international benchmarking survey, prices as at April 2002)

Oftel's benchmarking of broadband Internet services has been fully updated for prices valid at February 2002. However, in April 2002, BT made significant cuts to the prices of its wholesale DSL services. For example, IPStream 500, which is used to provide DSL services to residential consumers, was reduced from £30 a month to £14.75 a month, a reduction of over 50%, and this has filtered through to retail prices. This has had a big impact on the results for the UK and a snapshot from April 2002 has been included in the February study. While it was not possible to recheck tariffs for all operators from other countries, tariffs for the two operators with the cheapest February prices have been rechecked as at April 2002. It was found that only the UK had any significant changes in broadband prices.

For residential broadband users:

• for DSL services only (ie cable modems excluded), prices in the UK have fallen by 39% from the beginning of the year and the UK is now cheaper than Germany and France. Although the UK remains more expensive than the US and Sweden, the index gap has narrowed; and
• when cable modems are included the UK position improved slightly since the August 2001 benchmark. This is due to the fact that the two cheapest broadband services in the UK are cable services.

Comparison of residential broadband prices, April 2002

Source: Oftel International Benchmarking study published June 2002

For business broadband users:

• for the most basic services available to business (ie where the business has a minimum bandwidth requirement of 129kbit/s), the UK has improved its relative position and prices as at April are now cheaper than all other countries studied; and
• for business services where a minimum geometric mean bandwidth of 500kbit/s is required, the April price index shows that the UK’s relative position improves with the recent price drops and the UK is now 18% cheaper than France and Germany and the gap with Sweden and the US has narrowed

Comparison of business broadband prices, April 2002 (minimum bandwidth of 129 kbps)

Source: Oftel International Benchmarking study published June 2002

Further research

In addition to the quarterly consumer surveys, Oftel has published the results of qualitative 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 are:

• the main prompt to switching ISP or package is escalating cost, although some narrowband users are willing to restrict access to contain costs;
• some narrowband users have also obtained a second telephone, because usage was blocking their land line for significant periods of time. However some of these users realise that obtaining broadband is a sensible way of rationalising provision for a superior service at little extra expense;
• awareness of broadband, its providers, modes of access and benefits varies. Overall, many think that broadband services have not been sufficiently advertised; and
• almost all respondents consider broadband as the future means of Internet access and broadband users cannot 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 in summer 2002.

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

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.

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 February 2002, 56% of Internet households were using metered packages to access the Internet (22% subscription-based, 34% 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 Internet homes subscribe to unmetered packages.

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.

What is Oftel doing?

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

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

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 15 May 2002, Oftel published a Direction amending the requirements for provision of FRIACO by BT. The most important measure from the operators' viewpoint was that BT must now offer payment terms for unmetered access that are equivalent to those for metered access. Previously, an operator had to pay BT in advance for unmetered capacity, whereas metered capacity was despite the fact that the charges set for FRIACO assumed equivalent payment terms. Following publication of this Direction, BT has now announced to operators that it is amending payment terms for FRIACO to monthly in arrears. Other issues covered in the Direction included the period BT must use when assessing whether there is sufficient spare capacity to accommodate a request for ST FRIACO without rearrangement; the circumstances in which BT should increase its network capacity to handle Internet traffic; and BT's ability to charge for the routing of calls within its exchanges.

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 July 2002.

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 July 2002, addressing issues surrounding broadband. Details of the meeting are available at www.oftel.gov.uk/ind_groups/oif.

Next meeting

12 July 2001 - Service provider competition in the broadband market - getting the regulatory framework right

Minutes of previous meetings

19 September - ISPs' terms and conditions

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

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

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 March 2002, NTL launched a 1 mbps broadband service, for £49.99 a month. In June 2002, Telewest launched its 1mbps broadband service to its customers across the UK at £35 per month when taken with other Telewest Broadband services, or £39.99 on its own.

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 June 2002, Ntl has around 250,000 customers of their cable modem service (up from 52,000 in July 2001) while Telewest reports that it has around 169,000 cable modem customers (up from 38,000 in July 2001).

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.

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 Home: a self-install version of IPStream 500, offering lower connection and rental charges.
• 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.
• IPStream Office: self-install versions of IPStream S products, offering lower connection and rental charges.
• VideoStream: enables the provision of video-on-demand services.
• VideoStream Plus: enables the provision of video-on-demand services and can be self-installed.
• DataStream: enables the provision of IP-based networks, such as corporate intranets.
• DataStream Home & Office: self-install versions of the DataStream products, offering lower connection and rental charges

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 11,000 per week and stood at 280,000 as of end June 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 1115 exchanges covering 66% of households for the delivery of ADSL wholesale products (up from 839 exchanges covering 50% of UK households in May 2001). BT has also announced the introduction of a new ADSL order registration system, that will enable consumers and ISPs to register interest in receiving ADSL services. The registration system will cover all exchanges in the UK, though target demand levels will only be published for the 900 exchanges that BT has reviewed the cost of enabling. Should the demand levels for other exchanges be high enough, BT will review the cost of enabling those exchanges. Depending on the exchange, 200-500 end users will need to register interest before BT will enable the exchange 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.

Charges for DataStream Home & Office and VideoStream Plus fell on 29 April 2002 when BT reduced the annual rental charges to £111 and the connection charges to £50 (both ex VAT).

Oftel closed its investigation into BT’s marketing of its ADSL services after finding no evidence of anti-competitive behaviour by BT and on 21 May 2002, Oftel published a Statement setting out the policy that it will apply to BT’s marketing and use of the residential blue bill. This statement can be found at http://www.oftel.gov.uk/publications/ind_guidelines/mark0502.htm. The procedures will enable consumers to have easy access to information on what services are available to them and make clear how BT can market its services without acting anti-competitively. BT cannot use detailed information contained in residential customers’ bills in order to target its Internet access services to particular customers, as no other operator has access to this information. Oftel is likely to view use of this information as anti-competitive. In addition, BT sales staff will be subject to strict procedures to ensure that they comply with these rules. Oftel will closely monitor BT’s compliance, and will review the situation after six months.

More details on future developments, pricing and what Oftel is doing are available in Oftel's ADSL factsheet.

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.

At present, 79 physical and 47 distant location sites have been completed. Work is ongoing at an additional 8 physical and 1 distant location site. Over 400 loops have now been unbundled.

All of the current physical co-location products are based on a hostel, which is in a separate area of a BT exchange. Co-mingling is an alternative form of physical co-location where an operator’s equipment is fitted and operated in the same area in an exchange as BT houses its own equipment without any physical separation. BT offered Co-mingling after an Oftel direction in October 2001. Following this, Oftel investigated the criteria BT applies when rejecting a request for co-mingling. Oftel found that a number of criteria, including some technical requirements, were inappropriate. Following Oftel intervention BT agreed to revise the criteria, an amended version has now been published by BT. Operators are now placing orders for co-mingling facilities.

For more details on what is happening on LLU and what Oftel is doing, see Oftel's Local Loop Unbundling Fact Sheet.

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.

• Oftel issued a final decision on the phase 1 issues and an update of its leased lines market analysis on 14 June 2002. Oftel intends to publish the consultation on phase 2 in August 2002, with a view to resolving the dispute in October 2002.

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.

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 64-144 kbps for fast moving users in rural areas (depending on the quality of service), up to 384 kbps for slow moving users in urban/suburban areas. This might be further enhanced by the decision to employ wireless local area network technologies (such as 802.11 b) using deregulated spectrum. The UK has just amended the T act cordless class licence and the SI preventing the commercial exploitation of such bands. BT has announced recently a major initiative to exploit such WLAN technologies in public spaces, such as coffee shops.

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 the end of this year, or the beginning of the next. Deployment dates are currently tending to slip. General market sentiment has not been helped by the low take-up of GPRS (2.5G data service offering less than 50 kb/s).

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 'one-way' satellite), 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. However no public figures on subscriber numbers are available as yet.

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, 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 later in 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's broadband satellite service is now available across the UK. The monthly rental for the multi-user product is £109.99 and the single-user service monthly rental is £59.99. The connection charges of £1,299 and £899 respectively for the services both cover the purchase of equipment. [All prices exclude VAT.]

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

One-way broadband satellite

In April 2002, 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 the return path. The service is designed to help rural areas and is aimed at people working from home.

In May 2002, BT announced the trialists for the wholesale one way satellite product. The Internet companies said to be taking part in the six-month pilot include Nildram, Plusnet, Eclipse Internet, izR and KB Media. The wholesale price for the pilot will be £10 per month, with a one-off connection charge of £360 for the broadband hardware and installation. The service providers have yet to announce their retail prices. The service will give customers a standard download data speed of 256kbs, but higher speeds up to 4Mbps are also to be made available on a pay-as-used basis.

Nildram has since pulled out of the trial.

Regional broadband issues

Regional Broadband Unit

On 26 June 2002, e-commerce minister Stephen Timms announced a scheme involving the creation of a new broadband team and a network of regional broadband advisors, co-ordinated by the DTI, who will help boost rollout and take-up of high-speed broadband Internet across the UK. The aim of the scheme is to bring together work focused on public sector procurement with work focused on increasing availability in the private sector. It will stimulate economic development and enhance the delivery of public services through extending broadband services at the regional and local level.

Background and definitions

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.

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.

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.