Oftel's Internet and Broadband Brief – July 2003

Contents

Key headline statistics

Narrowband

Broadband

Key headline statistics

Notes:

1. Oftel's research examines UK SMEs with 1-250 employees and a minimum annual turnover in excess of £50K
2. This figure includes residential and SME subscribers to ADSL, cable modem, fixed wireless and satellite services and services provided via unbundled local loops. It does not include leased lines.
3. 71% of people live in areas where the exchange has been upgraded, but BT advises Oftel that technical limitations mean approximately 6% of people in each exchange area cannot get the service. This means that 67% of the UK can get ADSL services.
   

2. Oftel's aims

Oftel supports the Government’s targets;

• to ensure that everyone who wants it has access to the Internet by 2005; and
• to have the most extensive and competitive broadband market in the G7 by 2005.

Oftel wants to see the best deal for all consumers in terms of quality, choice and value for money. 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 continue to be 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. Take-up of broadband continues to increase substantially 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 markets through quarterly consumer surveys in the UK and a programme of regular international benchmarking.

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.

This definition of broadband is used by Oftel for the purposes of measuring take-up in order to capture the dynamic range of services available to residential and business consumers that are classed by the industry as broadband. This definition gives Oftel data that is comparable with broadband take-up figures published by other countries in Europe.

4. Monitoring the narrowband and broadband Internet markets

Oftel regularly monitors the UK narrowband and broadband markets and publishes its findings. Oftel’s International benchmarking study takes place every 6 months. The latest set of results published in June 2002 (based on services available in February 2002) includes the UK, France, Germany, Sweden, and the US states of Ohio and California. The latest report, which explains Oftel’s methodology in detail, is available at www.oftel.gov.uk/press/releases/2003/pr32_03.htm

Oftel’s quarterly market research surveys ask residential and SME Internet users about their use and experience of the Internet, as well as measuring consumer awareness and use of broadband technologies. The latest reports (based on surveys undertaken in May 2003) were published in July 2003, see www.oftel.gov.uk/consumer/about/research/index.htm

5. Key developments since the previous brief

• On 11 August Oftel published Broadband - a consumer guide, to encourage a better understanding of what broadband services are available and to enable consumers to take advantage of market opportunities resulting from competition. The guide is targeted at residential consumers who would like more information about what broadband offers and advice on how to find out what services are available in their area.

• On 31 July, e-Commerce Minister Stephen Timms announced the setting up of nine new bodies from October in each of the English regions. These Regional Aggregation Bodies (RABs) will be will be responsible for buying broadband services for public sector organisations.

• On 23 July, the BSG published a report urging Industry and Government to accelerate the quest for solutions for Digital Rights Management (DRM) and micro-payments, see www.broadbanduk.org

• On July 21, BT launched ADSL Exchange Activate - a solution designed for very small local exchanges where there is specific demand and a sponsor body interested in bringing broadband to the area for developmental, commercial or social reasons.

• On 21 July, Oftel ordered BT to reduce its charges for wholesale unmetered Internet access by 17 per cent.

• On 10 July, BT confirmed the level of demand needed to bring broadband to a further 500 exchanges.

• On 8 July, AOL announced the roll out of its high-speed broadband service on NTL's cable network infrastructure.

  Narrowband

6. Oftel's narrowband Internet access policy

Oftel’s approach is to promote competition in the provision of access to Internet services, thereby giving consumers greater choice, better value and higher quality, and spurring take up. Oftel seeks to ensure that the level of regulation is proportionate given the level of competition in the market, while protecting and informing consumers where the market does not do so.

7. Overview of the UK narrowband market

The UK has a competitive retail 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 telecoms operator does not dominate the UK dial-up retail market.

8. Availability

Dial-up Internet access is available to all UK households and businesses with a fixed telephone line. The vast majority of UK Internet service providers (ISPs) are available to consumers nationwide.

9. Take-up

Exhibit 1 Use of narrowband and broadband Internet packages (residential) May 2003

Source: Consumers' use of Internet, Oftel residential survey – May 2003, see www.oftel.gov.uk/publications/research/2003/q13intr0703.htm

* Note – figures shown for broadband are based on actual subscriber figures received by Oftel from the service providers. These are slightly lower than survey figures (not shown).

Exhibit 2 Use of narrowband and broadband Internet packages (business) February 2003

*From May 2003 onwards, figures were based on the main package used.

Source: Oftel small and medium business survey – February 2003, see www.oftel.gov.uk/publications/research/2003/q13intb0703.htm

10. Prices (June 2002 international benchmarking survey, prices as at February 2003)

• UK prices were cheaper than all other countries in the study for peak metered and unmetered services; and
• For off-peak services UK prices are below average for both metered and unmetered services.

Exhibit 3 Comparison of residential Internet access prices as at February 2003

Source: Oftel International benchmarking report, published June 2003

For business dial-up users:

• UK prices for unmetered services were well below those in France, Sweden and Ohio and above those in Germany and California; and
• UK prices for metered services were cheaper than Sweden and the US and more expensive than France and Germany.

Exhibit 4 Comparison of business Internet access prices as at February 2003

Source: Oftel International benchmarking report, published June 2003

11. Current narrowband products

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

11.1 Metered

In May 2003, 28% of Internet households were using narrowband metered packages to access the Internet (see table above).

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 proportion of consumers using pay-as-you-go packages has fallen as more unmetered services have become available.

11.2 Unmetered

Fully or partly unmetered packages are widely available and used. In May 2003, 32% of Internet homes claimed to use some type of narrowband unmetered access (see table above). Oftel estimates that around four million Internet homes subscribe to narrowband unmetered packages.

This is partly the result of Oftel’s directions requiring BT to make available unmetered wholesale Internet access products (called FRIACO, see paragraph 3.4.2 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.

On 1 June 2003, BT launched BT Midband. The BT Midband service is provided over Home Highway lines to residential users and over Business Highway / ISDN2/2e lines to business users.

New BT Midband customers will pay a flat-rate payment of £35 a month for line rental and 150 hours per month at 64 kbps, or 75 hours at 128 kbps. Customers can carry forward a maximum of 50 unused hours from the previous month.

12. Alternative means of narrowband Internet access

Most people use a PC and fixed telephone line for narrowband access, but other methods are also possible.

12.1 Mobile

The mobile phone is likely to be another way of accessing the Internet (around 80% of the UK population are mobile subscribers). With the introduction of ‘2½ G’ technologies, such as General Packet Radio Service (GPRS), which provide higher data rate communications, WAP services have become faster and therefore more user-friendly. It is also possible to get mobile access to ‘real’ Internet pages (like those available using a PC) by combining a GPRS phone and a laptop or personal digital assistant (PDA)

All four existing mobile networks have deployed GPRS, although T-Mobile’s GPRS service currently covers only picture messaging. Orange also offers another 2½ G product, High-Speed Circuit Switched Data (HSCSD).

Third generation (3G) mobile technology is covered in paragraph 19.5 below.

12.2 Television

Internet access through the TV set is being offered by the cable operators. It is also possible to use TV set-top boxes to gain dial-up access to the Internet and some TVs have built-in Internet access. These and other means of access, such as games consoles, could become a popular means of Internet access in the future.

Accessing the Internet in these ways may be more convenient for some people who cannot afford, or do not want to use a computer. However, Internet access through the TV is not widely used at the moment.

The Office of the e-Envoy has concluded a ’s October 2002 consultation document on digital television explored the potential for digital television to offer wider internet access and to enable more people to access Government services electronically. A final statement following that consultation is due to be issued after Easter. Work continues on exploring this within Government.

13. What is Oftel doing to promote competition in the narrowband market?

Oftel is taking action in a number of areas relating to dial-up Internet access to ensure fair competition:

13.1 Market reviews

The new EC regulatory framework requires Member States to review the main electronic communications markets by July 2003, in order to ensure that regulation remains proportionate in the light of changing market conditions.

One of the reviews looks at the market for unmetered wholesale narrowband Internet call termination, taking into account the links with the market for wholesale call origination. See Oftel's Review of the wholesale unmetered narrowband Internet termination market, consultation - 17 March 2003, at www.oftel.gov.uk/publications/eu_directives/2003/eu_narrow_term/index.htm. Oftel is also reviewing the relevant call origination remedies, including FRIACO and Number Translation Services (NTS).

13.2 FRIACO (Flat Rate Internet Access Call Origination)

FRIACO is an unmetered wholesale product that allows other network operators to offer their own unmetered Internet access products in competition with BT. The UK was the first European country to introduce FRIACO, following a direction by Oftel in May 2000, and it has led to some of the cheapest prices for Internet access in the world. Around six and a half million UK homes now use unmetered Internet access.

There are two variants of FRIACO available. DLE FRIACO coveys Internet calls to BT's local exchanges and Single Tandem FRIACO (ST FRIACO) conveys Internet traffic to BT's main regional exchanges.

Oftel has issued a number of directions relating to FRIACO. Recent work includes introducing a requirement to allow operators to pay monthly in arrears rather than in advance (May 2002), and a review of traffic patterns leading a price reduction of approximately 8.5% for DLE FRIACO (July 2002). In the EU market reviews (March 2003), Oftel has proposed that the current restrictions on the supply of ST FRIACO be lifted from July 2003. Currently, users of ST FRIACO must bear the risk of the additional investment in capacity being ‘stranded’ before the full costs have been recovered.

Most recently, on 21 July, Oftel ordered BT to reduce its charges for wholesale unmetered Internet access. Following an investigation and proposals set out earlier this year, Oftel concluded that BT has been charging operators for certain call routing and call management measures that are no longer necessary. As a result, BT’s wholesale charge will be reduced by 17 per cent and backdated to June 2002, the date from when these additional measures were not needed.

13.3 Oftel's consumer guide 'How to access the Internet at home'

In September 2002, Oftel published a new guide for consumers connecting to the Internet to encourage a better understanding of what products are available in the market and to enable consumers to take advantage of market opportunities resulting from competition.

Copies of the leaflet are available from Oftel (call 020 7634 8761). The leaflet is also included in the Government's UK online information pack, free phone 0800 77 1234. Go to www.ukonline.gov.uk/getstarted – for more about the Government's Get Started campaign.

In addition, the guide is available on Oftel's website at www.oftel.gov.uk/publications/consumer/consguides/int0902.htm.

  Broadband

14. 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 broadband programme 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 www.oftel.gov.uk/publications/broadband/other/stratb1201.htm.

Details of open compliance cases are available in:

• Oftel's DSL factsheet – www.oftel.gov.uk/publications/broadband/dsl_facts/index.htm; and
• Oftel's Competition Bulletin – www.oftel.gov.uk/publications/comp_bull/index.htm.

15. 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. So as to stimulate further competition at the infrastructure level, Oftel has required BT to provide local loop unbundling, shared access and ATM interconnection. In doing so, however, we have been careful to ensure that incentives to invest in alternative infrastructure are not undermined. We are also keen to ensure that BT has an incentive to invest and innovate.

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

16. Availability

Around 71% of the UK has access to broadband via DSL and around 45% via cable modem. Broadband fixed wireless access offers broadband to around 12% of the UK and satellite, though not currently a mass-market product, has the potential to deliver broadband across the UK.

16.1 Cable modems

Cable networks pass around 50% of UK homes. ntl and Telewest are both working to upgrade their networks so that they can provide broadband services to consumers in all the areas covered by cable networks. Telewest services are available to 4.9 million homes, of which 96% are broadband capable. NTL services are available to 8.4 million homes, of which 79% are broadband capable.

At present, 45% of UK homes (around 11 million) have access to broadband via cable.

16.2 DSL

Exhibit 5 DSL availability across UK

Note 4: Oftel understands from BT that because of the technical limitations of ADSL, approximately 6% of people in each exchange area cannot get the service. This means that 67% of the UK can get ADSL services.

BT estimates that ADSL will be available to 80% of UK households by December 2003. Trigger levels have now been set that if all were enabled, coverage would be 90%.

• BT's ADSL registration scheme

Since the web-based registration scheme was launched, more than 500,000 customers have recorded their interest in getting ADSL broadband. At the end of June 2003, 373 exchanges had been upgraded as a direct result of the scheme, bringing the total number of enabled exchanges to 1,507.

On 10 July, BT announced the level of demand needed to bring broadband to a further 500 exchanges. If there proves to be sufficient demand at all exchanges where trigger levels have now been set, BT will have brought ADSL broadband to 90 per cent of the UK.

Further information about BT’s DSL rollout is available at www.bt.com/broadband.

• Extending the reach of ADSL

BT Wholesale is testing the provision of ADSL broadband services over slightly greater distances from the exchange than at present. The distance restriction on ADSL coverage comes about because the strength of the signal gradually reduces due to electrical resistance in the cables. BT’s research has shown that a good quality service can still be provided when relaxing the limits on this loss in signal strength from 55dB to 60dB. This is roughly equivalent to extending the reach of broadband from 5.5km from an exchange to about 6km.

Currently about 94% of people connected to an ADSL-enabled exchange can get service. BT’s changes will increase that to about 97% – putting an estimated 600,000 new households in reach of ADSL. BT expects to introduce the changes in Autumn 2003.

On 25 February 2003, Kingston announced that an ‘extended reach’ version of its RapidBiz Broadband service is now available. This means that most businesses up to a 5km radius from their local exchange can now benefit from the service.

• Bypassing optical fibre

BT is also looking at people who cannot get broadband because they are connected to their exchange by optical fibre, which cannot support ADSL technology. The problem has typically affected households living on new housing developments built during the 1980s. BT's solution is to use copper cables to bypass the fibre. An ongoing build programme will increase ADSL availability over the next 12 months to fibre customers who are served within an ADSL enabled exchange area. BT began taking orders from 31 July 2003.

• BT's mini-DSLAMs trial ('exchange activate')

Following successful trials of a new ‘community’ broadband concept (known as Exchange Activate) at sites in England, Scotland, Wales and Northern Ireland, BT launched the product on 21 July 2003. Exchange Activate makes use of smaller exchange equipment (known as mini DSLAMs) and the existing copper links between smaller exchanges and BT’s backbone network to provide ADSL service in blocks of 30 end users. The product requires a ‘sponsor’ to purchase a 30 end user block for £45,000, which covers rental costs for three years. The sponsor is then responsible for selecting an ISP to provide service to the end users. Each exchange with a mini-DSLAM can support up to four service providers.

16.3 Wireless networks (including satellite)

• Broadband fixed wireless access (BFWA)

Current broadband fixed wireless access base stations have the potential to cover around 12% of the UK. These are mainly in urban areas where line of site is needed from the base station to a customer's premises.

• Community wireless networks

At a regional level, a growing number of groups are developing community wireless networks in areas where ADSL and cable modems are not available. These services are being used by both residential and business users. Information about these networks is available in Annex 2 of the Guide to Wireless Broadband, published by the Government's Broadband Taskforce, www.broadband.gov.uk/html/ukbroadband_task_force/publications.html details. For a full list of satellite and wireless service providers, visit www.rabbit-broadband.org.uk/solutions/supplier-list.asp.

• Wi-Fi hot spots

Wi-Fi hotspots are based on the 802.11b standard, and allow anyone with a wireless-enabled PDA or laptop to surf the Internet and send e-mail at high speed, without having to plug into a network. Wi-Fi hotspots are being built throughout the UK and Ireland at locations such as railway stations, airports, business parks and coffee shops. Currently there are over 100 operational WI-Fi sites in the UK and four operators offering services, BT Openzone, Starbucks, Megabeam and UK Explorer.

• Satellite

Two-way and one-way satellite access is also available throughout the UK, offering the potential to reach those parts of the UK outside of the reach of ADSL or cable modem services.

16.4 Extending availability

Oftel’s primary focus is to meet the needs of consumers through promoting competition at all levels of the value chain. For broadband, this means effective and sustainable competition in the provision of broadband networks and services, and a regulatory framework that is conducive to further investment in broadband and rollout to remote areas of the country.

Oftel aims to assist the Government as necessary in meeting the reasonable needs of consumers outside areas addressable where broadband is currently available. In so doing, Oftel aims to ensure that any measures are technologically neutral and, as far as possible, have no detrimental effect on the development of competition in general.

At present, Oftel contributes to the development and implementation of the Government’s broadband policy, working with the DTI, English RDAs and the devolved administrations to help foster a competitive and extensive broadband market. Oftel is also contributing to the work of the Broadband Stakeholders' Group (BSG), which has an important role to play in extending broadband rollout and take-up.

• UK Broadband Taskforce

The UK Broadband Taskforce was formally launched at the Building Broadband Britain conference in November 2002. The aim of the Taskforce is to bring together work focused on public sector procurement with work focused on increasing availability in the private sector, by stimulating economic development and enhancing the delivery of public services through extending broadband services at the regional and local level.

The Taskforce includes a team of regional broadband co-ordinators from DTI who will ensure that public sector broadband procurement has the maximum impact on regional economic development, and a team from OGC to provide procurement assistance.

On 31 July, Stephen Timms announced the setting up of nine new bodies from October in each of the English regions - Regional Aggregation Bodies (RABs). Set up in partnership with the RDAs the RABs will be responsible for:

• buying broadband services for public sector organisations; and
• cutting costs for public sector customers, particularly schools
  and hospitals.

In a community the RABs will join up individual public sector broadband requirements and present them as one bigger package to the market. This is intended to deliver better value deals and drive up availability by making it more attractive to telecoms companies to make the capital investment necessary to provide broadband in new areas.

A 'pathfinder' project run by the East Midlands Development Agency, demonstrating how the RABS will work, begins next month.

• Broadband Stakeholders’ Group

The Broadband Stakeholder Group (BSG) is Government's key advisory group on Broadband. It provides advice on the Government strategy to meet its target for the UK to have the most extensive and competitive Broadband market in the G7 by 2005.

On 20 March 2003, the Government published its response to the BSG's second annual report, www.broadbanduk.org/news/bsg_press_release_20_03_03.htm. Oftel has taken on the following key actions:

• Oftel to continue to work with the BSG to address issues related to broadband interconnect and interoperability (rec. 6);
• Oftel to monitor Quality of Service issues on a regular basis (rec. 7);
• Oftel to consult on draft guidance for the application of the new regime for the Communications Code (rec. 12.1) See The Granting of the Electronic Communications Code by Oftel, published 2 April 2003 www.oftel.gov.uk/publications/infrastructure/2003/elecode0303.htm; and
• Oftel to continue to keep under review whether further guidance is needed on sharing existing infrastructure (rec. 12.2).

On 23 July, the BSG published a report urging Industry and Government to accelerate the quest for solutions for Digital Rights Management (DRM) and micro-payments. See www.broadbanduk.org/reports/DRM_report.pdf.

17. Take-up

Exhibit 6 Broadband take-up at end July 2003

Exhibit 7 UK broadband users as at end May 2003

Source: Oftel (Underlying figures are confidential)

18. Prices (June 2003 international benchmarking survey, prices as at February 2003)

Oftel's latest international benchmarking report looks at prices for services offering speeds of 257 kbps and above. An additional "entry level" always-on residential basket has also been included to take into account the low speed always on services with a minimum speed of 128 kbps, available in most benchmarked countries.

For residential users:

• for the residential broadband basket (i.e. where the consumer has a minimum bandwidth requirement of 257 kbps), UK prices are cheaper than all countries apart from Sweden both for DSL only and when cable modems are included; and
• for the "entry level" residential basket (i.e. when there consumer has a minimum bandwidth requirement of 128 kbps);
  – when cable modems are included the UK is cheaper than all other countries; and
  – when DSL only prices are compared, prices in the UK are similar to France and Sweden and significantly cheaper than Germany and the US.

Exhibit 8 Comparison of residential broadband prices, February 2003

Source: Oftel International Benchmarking study published June 2003

For business broadband users:

• for the most basic services available to business (i.e. where the business has a minimum bandwidth requirement of 257 kbps), prices in the UK are similar to Sweden, cheaper than the US and France and more expensive than Germany; and
• for business services where a minimum geometric mean bandwidth of 500 kbps was required, UK prices are more expensive than the other countries benchmarked.

UK prices have remained relatively stable over the period August 2002 to February 2003 but prices have fallen significantly in France, Germany and Sweden. This has had a negative impact on the relative position of the UK and results in the UK having the highest prices for services with a minimum speed of 500 kbps. This will change if BT’s price cuts are fed through to the end user, these price cuts will being UK prices more inline with other countries.

Exhibit 9 Comparison of business broadband prices, February 2003 (minimum bandwidth of 129 kbps)

Source: Oftel International Benchmarking study published June 2003

19. Current broadband products (retail and wholesale) and what Oftel is doing in these areas to promote competition

19.1 Broadband cable

Both ntl and Telewest offer high-speed Internet access over their cable networks via cable modems. Telewest charges £50 for connection, reduced to £25 for customers subscribing to Telewest's telephone and TV services as well. The standard cost of installation for new ntl customers is £75 and £50 for existing customers.

Exhibit 10 Retail cable modem services on offer

On 8 July 2003, AOL announced the roll out of its broadband service on NTL's cable network infrastructure.

19.2 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 local exchange. 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 5.5km of their local exchange (but see Extending the reach of ADSL, above).

• Retail DSL services

There are over 100 ISPs offering retail services based on BT’s wholesale ADSL products (see below), including BT’s own service providers, BTOpenworld and BT Retail. Oftel estimates that BT's ISPs have around 50% of the retail DSL market.

Increasingly, ISPs are beginning to offer DSL services using ATM interconnection and over unbundled loops (see also below) giving them the freedom to provide innovative products e.g. with lower contention rates or symmetrical bandwidth.

• 256 kbps to 2 mbps and more

A number of ISPs have recently announced higher bandwidth ADSL services offering speeds of up to 1mbps and 2mbps, available to residential and business users.

• SDSL

SDSL typically appeals to small and medium sized businesses, which need to both receive and transmit data at high speeds.

A number of ISPs are promoting SDSL to their business customers in areas that have SDSL coverage. These packages are based around LLU products (e.g. from Easynet and Bulldog) as well as BT Wholesale's own symmetric products which it is trialling.

BT's trial of SDSL in 22 exchanges was extended to 100 exchanges in May 2003, and a commercial launch of the service is scheduled later this year.

• BT’s wholesale Asymmetric Digital Subscriber Line (ADSL) Service

BT offers a number of wholesale products, which are available to all service providers on the same terms and conditions. They are:

Exhibit 11 BT's wholesale DSL products

BT Wholesale is set to trial a new 1 mbps consumer ADSL service in September 2003, with the intention of a commercial launch by the end of the year. Prices and other details will be announced later in the summer. BT has dropped plans to launch an entry-level wholesale 256 kbps ADSL product.

Exhibit 12 Price of BT's wholesale DSL products

Oftel is currently investigating a complaint from a number of operators in relation to BT's latest cuts in IP Stream prices.

Oftel's initial findings were that these price changes, relative to the Datastream product, could have prevented other operators from competing to provide broadband services to Internet service providers. Oftel therefore held urgent discussions with BT, and asked them to make reductions in the price of the Datastream product.

Following these discussions, BT announced on 7 May 2003 that it will cut its Datastream prices by £0.70 a line, with additional discounts for high volume connections. This price cut should allow other operators to compete more effectively with BT.

Oftel is now continuing its work to reach final conclusions on whether BT is margin squeezing. Oftel intends to publish its views shortly.

• Kingston's wholesale Asymmetric Digital Subscriber Line (ADSL) Service

Since 1 November 2002 Kingston Communications has offered service providers a range of wholesale products. They are:

Exhibit 13 Kingston's wholesale DSL products

Before the launch of these products, Kingston offered a wholesale ADSL product that could be used by service providers primarily to offer services aimed at the residential market.

• Price of Kingston's wholesale DSL products

All Kingston's wholesale products have a £55.32 (ex VAT) connection charge with annual rental charges ranging from £231.60 to £1,122 (both ex VAT), depending on speed, contention and type of connection.

• ATM interconnection

Following Oftel's June 2002 direction requiring BT to provide interconnection to its BT's broadband network, operators now have the option of offering competing wholesale and retail services. Oftel is ensuring that the prices BT charges for interconnection are set at a level that encourages competition between the different providers. As a result of the direction Tiscali are offering innovative services to customers.

• 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. LLU enables other operators and service providers to install their 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 out BT’s obligations 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 taken action to resolve disputes.

Exhibit 14 LLU take-up

At the end of July 2003, there were over 6,400 unbundled loops being used by operators and service providers to deliver a range of broadband services to end-users including, for example, SDSL and 4 mbps services.

For more information about the progress made with ADSL rollout and LLU, including current issues and upcoming developments, see Oftel's DSL fact sheet at www.oftel.gov.uk/publications/broadband/dsl_facts/dsl0203.htm.

19.3 Leased Line Access

Leased lines are permanent high-capacity telecommunications links. They are supplied by network operators to business users and are used by operators and services providers, for example, to supply backhaul for mobile networks and connections to the Internet used by Internet service providers. Leased lines may be provided at a variety of bandwidths ranging from below 2 mbps to 2.5 gbps.

• Oftel issued its comprehensive Direction on Partial Private Circuit (PPC) prices and service level agreements on 23 December 2002. PPCs are the key wholesale components of leased lines which telecoms operators buy from BT so they can offer their own services directly to end users. The prices set by Oftel for PPCs are typically 50 per cent lower for connection and 20 per cent lower for rental than BT's previous charges. Oftel believes these charges better reflect the costs BT incurs in providing these services. The amended charges have been backdated to 1 August 2001 when PPCs were first introduced by BT.

• Oftel also required BT to make a number of improvements to its service level agreement for PPCs. These improvements include BT paying appropriate levels of compensation to other operators in the event of late delivery. This will act as an incentive for BT to provide a high quality service to other operators.

Overall, Oftel believes that these measures will allow operators to compete more effectively with BT in the retail market for leased lines.

Oftel is considering whether further action is required in the leased line market as part of its implementation of the new EU regulatory framework.

19.4 Broadband Fixed Wireless Access

Broadband fixed wireless access (BFWA) 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.

• 3.4GHz

Licences were originally awarded in the 3.4GHz spectrum to Ionica and Thus in 1993. Ionica's licence was revoked and given back to the Radiocommunication Agency for reallocation. In July 2002 the government removed limitations of use and roll out obligations and the licences were re-auctioned in June 2003. There were 12 bidders for 15 licences and Poundradio (a subsidiary of PCCW Hong Kong) won 13 out of 15 licences. The other two went to Red Spectrum and Public Hub. The auction raised £7,414,000.

• 3.6-4.2GHz

Firstnet recently acquired Liberty Broadband, and operate the first wireless network built in the UK. This network was built using spectrum at 3.6-4.2GHz and covers the Thames Valley and several major UK cities.

• 28GHz

The RA also auctioned spectrum for BFWA at 28GHz in November 2000. Energis, Your Communications, Faultbasic, Broadnet UK, Chorus Communication and Eircom NI 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 and Eircom has surrendered its licence. The other licensees are at various stages in deploying networks. Your Communications is the only company to have launched a service. Its services offer low contention data services to businesses at 512 kbps (£500 connection charge, £4000 yearly rental) and 3 mbps (£1000 connection charge, £15,200 yearly rental) from completed base stations in Birmingham, Manchester, Cumbria and Leeds.

The 28GHz licences that were not awarded in the 2000 auction were available for auction until mid October 2002 at the original reserve prices (varying from £1 to £2 million) and under the same terms, but no bids were made. The RA launched a consultation on the future process for awarding the available 28GHz licences, this proposed that licences should not contain a ‘use it or lose it’ clause or restrict the purposes for which they can be used. The consultation closed on 14 November and the RA has decided to remove the clause.

• Other spectrum

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.

• Wireless local area network technologies (WLAN) or 'Wi-fi'

The UK recently amended the regulatory framework to permit the commercial use of wireless local area network technologies (WLAN), such as 802.11b, in the 2.4GHz licence-exempt spectrum. Following consultation by the RA earlier this year, further deregulation in parts of the 5GHz spectrum is expected shortly.

BT has announced recently a major initiative to exploit such WLAN technologies in public spaces, such as coffee shops and T-Mobile have already launched a WLAN service called HotSpot to provide broadband connectivity in locations such as selected branches of Starbucks. There are also a number of commercial community broadband networks based on Wi-Fi technology in this frequency band.

For further information see the Radiocommunications Agency’s broadband wireless update at www.radio.gov.uk/topics/broadband/index.htm

19.5 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.

There are 5 licensees for 3G networks, all four incumbent 2G operators and Hutchison 3G, a new entrant to the market. Commercial services are expected to become available this year. Hutchison 3G (under the brand name of '3') has soft-launched its services for trial users and plans to move to commercial sales soon.

19.6 Broadband Satellite Access

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).

In July 2002 the Radiocommunications Agency introduced a block licensing process for small satellite earth station terminals called 'SatClear' - an online clearance and registration system. This lighter touch process was introduced to reflect the increase in networks using small interactive satellite earth station terminals.

In April 2003, the Office of the Deputy Prime Minister launched a 3-month consultation looking at the siting of satellite dishes and antennas. The consultation offers five options, ranging from no change to full deregulation. The consultation will run until Friday 4 July 2003.

• 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 subscriber numbers are increasing. For example:

• Aramiska's services start at £99 a month for speeds of up to 256 kbps downstream and 64 kbps upstream, with a £500 installation and connection fee.
• BTOpenworld charges £109.99/month for its multi-user product monthly and £59.99 for the single-user service. The connection charges of £1,299 and £899 respectively for the services both cover the purchase of equipment. [All prices exclude VAT].
• TiscaliSat is currently trialling a two-way, satellite service. At the end of the trial, triallists will be able to hand back their equipment or pay £650 to continue using the service. Monthly subscriptions will be £59.99. Both Tiscali's and BTOpenworld's offerings are based on a service from the satellite operator Gilat.

• One-way broadband satellite

One way satellite enables high-speed always-on downloads to the end-user, using the PSTN as the return path. A number of ISPs are offering retail services based on this. For example:

• Everywhere Broadband! offers a one-way satellite service, using the PSTN as the return path for £19.95/month. Average downstream speeds are 400kbps, upstream speeds are 64kbps.

20. Review of the broadband market

The new EC regulatory framework requires Member States to review the main electronic communications markets by July 2003, in order to ensure that regulation remains proportionate in the light of changing market conditions. Oftel's broadband market review divides the broadband market into three distinct areas, which are:

• Retail and wholesale leased lines – the retail section will cover analogue and digital up to and including 8 mbps.
• DSL (wholesale bitstream access)
• Local Loop Unbundling (unbundled access)

20.1 Retail and wholesale leased lines

www.oftel.gov.uk/publications/eu_directives/2003/eu_leased_lines/index.htm

Oftel’s consultation document published in April 2003 proposed that there is now a market for wholesale symmetric broadband origination which includes not only wholesale terminating segments used for retail leased lines, but also radio base station backhaul circuits, LLU backhaul and any other symmetric broadband origination products (such as SDSL) which may be introduced in future.

Oftel proposed that this market (and the retail leased lines market) should be split into three, with a proposed finding of SMP at low and high bandwidths (up to and including 155 mbps) and no SMP at very high bandwidths. The review also proposed a finding of SMP in wholesale trunk segments.

Oftel is proposing regulation at the wholesale level broadly similar to that currently applying, other than at very high bandwidths where any existing regulation is being withdrawn. Thus the measures in the PPC Directions and the LLU backhaul Direction published in August 2002 are to a large extent being carried forward into the new regime, providing certainty for operators. At the retail level, Oftel is proposing regulation only for low bandwidths, agreeing with the European Commission that reliance should instead be placed on wholesale regulation for high and very high bandwidths.

20.2 DSL (wholesale bitstream access)

www.oftel.gov.uk/publications/eu_directives/2003/eu_dsl/dsl.pdf

The wholesale broadband access market review consultation document proposes that BT has SMP in the following markets:

• the market for asymmetric broadband origination in the UK (excluding Hull); and
• the UK market for broadband conveyance.