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

Note 1

Note Oftel's change of survey sample and methodology this quarter in order to better represent consumers in rural and deprived areas. See http://www.oftel.gov.uk/publications/research/2002/q9int_r0702.htm#ch2

Note 2

This is estimation based on Oftel's survey of SMEs that has been grossed up to the total UK SME population. This is because Oftel's surveys look only at SMEs with between 1-250 employees and a minimum annual turnover of more than £50k. The total UK SME population is approximately 3.7 million SMEs in the UK.

Note 3

66% of people live in areas where the exchange has been upgraded, but BT advises Oftel that because of the technical limitations of ADSL approximately 5% of people in each exchange area cannot get the service. This means that ADSL is currently available to approximately 63% of the households.

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 published a consultation document setting a new pricing and quality of service regime for Partial Private Circuits (PPCs). Comments on Oftel’s proposals are invited by 8 October. PPCs are BT wholesale products, which enable other operators to offer leased lines to UK business customers. Under Oftel’s proposals connection charges for PPCs will be reduced typically by 50% and rental charges by 30%. Oftel has also proposed improvements to BT’s service level agreements for the provision of PPCs. (10 September).

• Todmorden became the first exchange to reach BT's pre-registration trigger level after 200 consumers registered their interest in receiving ADSL services (9 September)
• BT announced plans to introduce a range of Virtual Path (VP) bandwidths on its DataStream Home and Office services from 12 October 2002. A VP is a path through BT's network that must be purchased by a service provider in order to promote services to end-users. In addition to the 4Mbit/s VP currently on offer, service providers will be able to order 256kbit/s, 512kbit/s and all 1Mbit/s intervals between 1Mbit/s and 10Mbit/s (20 August)

• BT is to trial a new ‘community’ broadband concept that makes use of smaller exchange equipment (known as mini DSLAMs) and the existing copper links between smaller exchanges and BT’s backbone network to offer ADSL services to as few as 16 subscribers (13 August)

• Oftel published a final direction on LLU backhaul services (8 August 2002)

• Oftel published the results of surveys of business and residential consumer use of Fixed, Internet and Mobile services for May 2002 (29 July 2002 and 24 July 2002)
• Oftel published a determination revising the level of adjustment ratio for DLE FRIACO (18 July 2002)

Market information

Monitoring the Internet and broadband access market

Oftel regularly monitors the UK Internet and broadband access 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.

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.

Narrowband

For residential and business users:

Broadband

For residential and business users:

• Cable networks pass approximately 50% of UK households and cable modem services are available to around 43% of all households (Note Oftel's change of survey sample and methodology this quarter in order to better represent consumers in rural and deprived areas. See http://www.oftel.gov.uk/publications/research/2002/q9int_r0702.htm#ch2). 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 79% are broadband capable. This equals over 11 million homes where broadband cable modem access is available.

• 66% of UK consumers and businesses are within the area of a DSL enabled exchange. Oftel is advised by BT that because of the technical limitations of ADSL, approximately 5% of people in each exchange area cannot get the service. This means that ADSL is currently available to approximately 63% of UK 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.
• Broadband fixed wireless access is available in some urban areas around the country.

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

Narrowband

For residential users (May 2002 survey):

• 43% of UK homes are connected to the Internet; and

• 48% of Internet homes use unmetered packages.

For business users (May 2002 survey):

• 63% 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
• 55% 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 beginning of the year.
• There are currently around 390,000 ADSL end-users (around 380,000 based on BT and 10,000 on Kingston) at mid-September 2002 and over 490,000 cable modem end-users at the beginning of August 2002.
• In addition there are around 3000 broadband fixed wireless end-users and an estimated 2000+ homes and businesses with satellite access.
• There are also over 1000 unbundled local loops being used by operators to provide broadband services to end-users.

UK Broadband end-users August 2002

For residential broadband users:

• Around 6% of homes with Internet access use an ADSL or cable modem broadband connection.

For business broadband users:

• Industry subscriber figures suggest that 8% of businesses with Internet access (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 were cheaper than all other countries in the study by at least 9% for unmetered services; and
• For metered usage at peak times, the UK compared favourably with all countries and for off-peak the UK compared favourably with the US and France but prices were 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 were well below those in France and Sweden, but above those in Germany and the US; and

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

Comparison of business Internet access prices as at February 2002

Source: Oftel International benchmarking report, published June 2002

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

Oftel's benchmarking of broadband Internet services were 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 filtered through to retail prices. This had a big impact on the results for the UK and a snapshot from April 2002 was 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 were 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 had fallen by 39% from the beginning of the year and the UK was cheaper than Germany and France. Although the UK remained more expensive than the US and Sweden, the index gap had narrowed; and
• when cable modems were included the UK position improved slightly since the August 2001 benchmark. This was due to the fact that the two cheapest broadband services in the UK were cable services.

Comparison of residential broadband prices, April 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 had improved its relative position and prices as at April were cheaper than all other countries studied; and
• for business services where a minimum geometric mean bandwidth of 500kbit/s was required, the April price index showed that the UK’s relative position improves with the recent price drops and the UK was 18% cheaper than France and Germany and the gap with Sweden and the US had 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 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 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 means 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 later this year.

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 55% of SMEs with Internet access use a dial-up PSTN connection to the Internet. A further 3% of households and 36% 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 May 2002, 52% of Internet households were using metered packages to access the Internet (24% subscription-based, 28% subscription-free).

Unmetered

Unmetered packages can be fully or partly unmetered and have grown significantly in both availability and take-up since their introduction. 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 May 2002, 48% of Internet homes claimed to use some type of unmetered access (38% fully unmetered and 10% 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 (around 80% of the UK population are mobile subscribers). Services like these are already available - Oftel research from February 2002 shows that 12% of UK adults owns a WAP mobile phone (May 2002). With the introduction of ‘2½ G’ technologies, such as General Packet Radio Service (GPRS), providing 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)

GPRS, which allows packet data transmission on GSM networks has been deployed by all four existing mobile networks, although T-Mobile’s GPRS service currently covers only picture messaging. Oftel research in February 2002 showed 3% of UK adults as owning a GPRS-enabled mobile phone (although GPRS capability is increasingly becoming a standard feature).. GPRS data rates were up to 40kbps initially. Orange also offers another 2½ G product, High-Speed Circuit Switched Data (HSCSD), to business customers, which provides data rates of 28.8 kbps.

Third generation (3G) mobile technology is covered in section 4.7 below.

Television

Internet access through the TV set is being offered by cable operators. It is also possible to use TV set-top boxes which offer dial-up access to the Internet. These and other means of access, such as games consoles, could become a popular means of Internet access in coming years.

Indeed accessing the Internet in these ways may be more convenient for some people who cannot afford, or do not like the complexity of using a computer. But Internet access through TVs is not widely used at the moment, and the inconvenience involved (e.g. the impossibility of watching TV programmes simultaneously) may hinder future take-up.

What is Oftel doing?

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

The EC has recently introduced four new Communications Directives, which require Member States to carry out reviews of competition in communications markets by 25 July 2003, in order to ensure that regulation remains proportionate in the light of changing market conditions.

Review of the dial-up Internet access market

It is intended that one of the reviews will concentrate on the market for internet call termination, taking into account the links with the market for internet call origination. In particular, Oftel will review the current FRIACO and Number Translation Services (NTS) remedies applied in the internet call origination market not only to prevent abuse of BT’s market power in that market but also to help to prevent any leveraging of market power from call origination into internet call termination.

In reviewing the internet call termination market, Oftel will look not only at potential internet call termination remedies for any Significant Market Power (SMP) that might exist in that market, but also at potential extensions of the existing internet call origination remedies, which might help to prevent abuse of SMP by minimising leveraging of SMP from call origination.

Review of the Broadband market

This review will divide the broadband market into three distinct areas, which will reflect the Commission’s markets. These are:

• Retail and wholesale Leased lines – the retail section will cover analogue and digital up to and including 2 Mbits.

• LLU (unbundled access)

• DSL (wholesale bitstream access)

Oftel will carry out the market review of these areas in accordance with the Commission’s Recommendation on Markets and SMP Guidelines, as well as the Directives referred to in the introduction to paragraph 3.4.1. The review will publish one or more consultation documents regarding the markets, which will set out whether the markets are effectively competitive and proportionate remedies to address any problems. There will be a consultation period for these draft findings, followed by a final statement amending or confirming the draft findings.

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 DLE FRIACO) to enable other network operators to offer their own unmetered Internet access products in competition with BT. DLE FRIACO coveys Internet calls to BT's local exchanges. In February 2001 Oftel required BT to offer other network operators an additional wholesale unmetered Internet access product known as ST FRIACO (Single Tandem FRIACO). ST FRIACO conveys Internet traffic across the network to the operator's own telephone network at BT's main regional exchanges.

The UK was the first European country to introduce FRIACO and it has led to some of 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 did not have to be paid for in advance. This was despite the fact that the charges set for FRIACO assumed equivalent payment terms. Following publication of this Direction, BT has 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 rearrangements, namely 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 18 July 2002, Oftel published a further Direction, reviewing the adjustment ratio for DLE FRIACO. The adjustment ratio is used in calculating the price of FRIACO. The Direction’s conclusions, based on FRIACO traffic patterns since its introduction, resulted in a reduction in the price of DLE FRIACO of approximately 8.5%.

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 October 2002. Details of the meeting are available at www.oftel.gov.uk/ind_groups/oif.

Next meeting

October 2002

Minutes of previous meetings

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

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, at the same time 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.

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 Annual report 2001 http://www.oftel.gov.uk/publications/about_oftel/annual_report/index02.htm

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. 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 also launched a 1mbps broadband service at £35 per month if taken with other Telewest services or £39.99 on its own.

NTL also offers a 128kbps cable modem service for £14.99 a month.

Most of Ntl and Telewest’s cable networks are broadband ready, but not all. Both operators are working to upgrade their networks where necessary.

According to publicly available figures at the beginning of August 2002, NTL has around 300,000 cable modem customers (up from 72,000 in September 2001) while Telewest reports that it has over 190,000 cable modem customers (up from 62,000 in September 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 wholesale 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

In addition, following Oftel's 21 June 2002 Direction requiring BT to provide interconnection to its BT's broadband DSL network, operators now have the option of offering competing wholesale services to BT's. Oftel is ensuring that prices for these new services are set at a level that encourages competition between the different providers of broadband services. Oftel also directed BT to trial SDSL if requested by an operator.

ADSL take-up

There are over 100 ISPs offering retail services based on 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) stood at around 380,000 at mid September 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.

ADSL rollout

BT has enabled 1116 exchanges covering 66% of households for the delivery of ADSL wholesale products (up from 839 exchanges covering 50% of UK households in May 2001). 66% of UK consumers and businesses are within the area of a DSL enabled exchange. Oftel is advised by BT that because of the technical limitations of ADSL, approximately 5% of people in each exchange area cannot get the service. This means that ADSL is currently available to approximately 63% of UK households.

In June 2002, BT announced the introduction of a new ADSL order registration system, that enables consumers and ISPs to register interest in receiving ADSL services. The registration system covers all exchanges in the UK, though target demand levels will only be published for the 900 exchanges where 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, 200-750 end users will need to register their interest before BT will enable the exchange. Todmorden in West Yorkshire has become the first exchange to reach its trigger level after 200 consumers expressed interest with their ISPs in receiving ADSL services. Once BT has received confirmation from the ISPs that 75% of these consumers have placed orders for ADSL services it 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 95%.

ADSL prices

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. Wholesale 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 most dramatically 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 publications

On 21 June 2002, Oftel issued a Direction requiring BT to offer ADSL broadband interconnection services to enable operators to connect to BT's network and therefore provide a much wider range of wholesale and retail broadband services in competition with BT.

In 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 published a Statement setting out the policy that it will apply to BT’s marketing and use of the residential blue bill. 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. This means that 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.

At the end of May 2002, Oftel concluded that BT’s charges for IPStream and DataStream were 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.

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

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, 86 physical and 50 distant location sites have been completed. Work is ongoing at an additional 20 physical and 7 distant location sites. Over 1100 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.

On 8 August 2002, Oftel published a final direction on LLU backhaul services - used by local loop unbundling operators to carry traffic from their equipment in BT’s exchanges, to a point where it can be delivered onto their own networks. Operators that provide services over unbundled local loops usually use BT’s network to carry traffic from their equipment in BT’s exchanges onto their own networks. In order for operators to be able to compete with BT to provide broadband services, Oftel ordered BT to carry other operators’ traffic across its network at cost-oriented prices.

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

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.

Following the launch of PPCs on 1 August, Oftel received requests for determinations on a number of issues from eight of the OLOs. Oftel published a draft Determination on some of the product definition issues 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. A number of substantive issues, relating mainly to pricing and service level agreements for PPCs, were left for a separate (phase 2) consultation.

Oftel published the consultation document on phase 2 on 10 September 2002. This document set out proposals for a new pricing and quality of service regime for PPCs. Comments on Oftel’s proposals are invited by 8 October. Under Oftel’s proposals connection charges for PPCs will be reduced typically by 50% and rental charges by 30%. Oftel has also proposed improvements to BT’s service level agreements for the provision of PPCs. A final direction will be published later this year.

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 ('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.

Liberty Broadband (formerly Tele2) are currently offering commercial FWA data-only services for 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. Liberty Broadband aims to enable all 40 major urban areas in the UK - 65% of the UK population -by 2003.

In June 2002, Liberty Broadband announced a change in strategy and has moved away from consumer broadband services and re-focused on the business broadband market. Tele2 no longer actively seek residential customers, but continue to support existing consumers for as long as they require the service. Liberty Broadband is reportedly prepared to rollout its broadband services if at least 100 customers from within a 10km radius area come forward.

The Radiocommunications Agency ('the Agency') auctioned spectrum for BFWA at 28GHz in November 2000. Energis Local Access Ltd, Your Comminications Ltd, Faultbasic Ltd, Broadnet UK Ltd, Chorus Communication Ltd and Eircom NI Ltd 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. Eircom has surrended its Licence. The other Licensees are at various stages in deploying networks. In particular, Your Communications is the only company to have launched a service. They are offering broadband to corporate and organisations in the West Midlands, Greater Manchester, Yorkshire and the North of England including Cumbria.

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 licence terms

The Agency will be reviewing the possibility of extending the current award process, taking account of the recommendations of the Review of Spectrum Management chaired by Professor Martin Cave, published in March 2002.

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 use of this band for residual FWA is under consideration.

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 regulatory framework 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). Commercial services are expected to become available from later this year or the beginning of the next, as 3G handsets become more readily available. Some operators may choose not to deploy 3G services until later on as they first develop GPRS (2.5G data service offering up to around 50 kb/s) on their existing networks.

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).

Take-up

Oftel has contacted UK satellite service providers with a view to understanding the size of the broadband satellite access market. Oftel has received subscriber figures from a number of companies, including the likely larger players. Based on this information, Oftel estimates that there are over 2000 broadband satellite end-users in the UK (residential and business).

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 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 which will be launched commercially later this year. At the end of the trial, 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 who are out of range of normal ADSL services 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 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 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. The trial began in July 2002.

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.

Community Broadband trial

BT is to trial a new ‘community’ broadband concept at sites in England, Scotland, Wales and Northern Ireland. The trial makes use of smaller exchange equipment (known as mini DSLAMs) and the existing copper links between smaller exchanges and BT’s backbone network to offer ADSL services to as few as 16 subscribers. The trial is due to start at the end of September 2002.

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.