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

1 A fluctuation of 1% is within the error margins of the survey which indicates no change in Internet penetration since May 2002

2 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 - Oftel's sample represents about 3 in 10 of these (around 1 million)

3 ADSL, cable modem, BFWA and satellite end-users plus unbundled local loops

4 66% of people live in areas where the exchange has been upgraded, but BT advises Oftel that technical limitations mean approximately 5% of people in each exchange area cannot get the service.

Summary

• Oftel supports the Government’s aim of making 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 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. 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:

• Todmorden has become the first exchange to be enabled under BT’s registration scheme. A further 21 exchanges have reached their target levels and had sufficient orders confirmed. These exchanges have now been placed on BT’s build programme. (8 November)
• BT has started the trial of a range of symmetric digital subscriber line (SDSL) variants of its IPStream and DataStream products, aimed at providing end users with faster upstream data rates. The six month trial is initially based around 20 exchanges in the Greater London area but will be rolled out to a further 30 exchanges, including some in Manchester and Yorkshire, during the trial period.

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. The next report will be published in December.

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 set of results, for August 2002, were published in October 2002 http://www.oftel.gov.uk/consumer/research/research_index.htm.

Availability

Narrowband

For residential and business users:

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

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. 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 modems are 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. At the e-Summit on 19 November 2002, BT announced that by mid-2005, broadband services could be available to around 80% of the country.
• 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.
• 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 an ADSL or cable modem connectivity solution.
• Leased lines, which are used to supply business with symmetric broadband services are available throughout the country. Oftel's determination on partial private circuits (see below) should stimulate competition and lower prices for leased lines

Take-up

Narrowband

For residential users (May 2002 survey):

• 42% of UK homes are connected to the Internet; and
• 61% of Internet homes use unmetered packages.

For business users (May 2002 survey):

• 67% of UK SMEs are connected to the Internet (96% medium-sized and 66% small businesses); and
• 62% 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.
• As at 1 November 2002 there were around 460,000 ADSL end-users (around 450,000 based on BT and 10,000 on Kingston) and there were 667,000 cable modem end-users.
• In addition there are around 3000 broadband fixed wireless end-users and an estimated 2000+ homes and businesses with satellite access.
• There are also nearly 2000 unbundled local loops being used by operators to provide broadband services to end-users.

UK Broadband end-users 1 November 2002

These figures cannot be directly compared to last quarter due to a change to question phrasing. Since February ’02 the quarterly surveys have included alternative questions to establish the type of Internet package being used. The original question was fairly complex and lengthy with scope for misinterpretation amongst consumers.

For residential broadband users:

• Around 7% of homes with Internet access use an ADSL or cable modem broadband connection, according to recent subscriber figures.

For business broadband users:

• Industry subscriber figures suggest that 10% 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.

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

Source: Oftel International Benchmarking study published June 2002

For business broadband users:

• for the most basic services available to business (ie where the business has a minimum bandwidth requirement of 129kbit/s), the UK 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

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

Current technology

The UK has a competitive 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 UK dial-up retail market. Over 80% of online households and 61% of SMEs with Internet access use a dial-up PSTN connection to the Internet. A further 3% of households and 32% 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 proportion of consumers using pay-as-you-go packages has fallen as more unmetered services have become available. In August 2002, 39% of Internet households were using metered packages to access the Internet (7% subscription-based, 32% 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.

In August 2002, 61% of Internet homes claimed to use some type of unmetered access. Oftel estimates that just over six million Internet homes subscribe to unmetered packages.

BT's Midband

At November 2002's e-Summit, BT unveiled details of a new product called 'Midband'. Midband will consist of two 64 kbps connections bundled together to create a 128 kbps channel. It will not be completely always-on, but is expected to provide always-on e-mail. BT are planning to begin trialling Midband in March or April 2002.

Alternative means of dial-up Internet access

Mobile

The mobile phone is likely to 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 own a WAP mobile phone (May 2002). 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)

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 as well as TVs with 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.

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. However, Internet access through TVs is not widely used at the moment.

What is Oftel doing?

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

Market reviews

The EU 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 wholesale narrowband Internet call termination, taking into account the links with the market for wholesale call origination. This will assess whether any operator has significant market power and if so assess what remedies are appropriate. In addition, Oftel will review the relevant call origination remedies which include FRIACO and Number Translation Services (NTS) to prevent any leveraging of market power from call origination into internet call termination.

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. Oftel 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 an additional wholesale unmetered Internet access product known as ST FRIACO (Single Tandem FRIACO). ST FRIACO conveys Internet traffic to 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.

On 18 July 2002, Oftel published a further Direction, reviewing the adjustment ratio which 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. Details of the meetings are available at www.oftel.gov.uk/ind_groups/oif.

Next meeting

Winter 2002

Minutes of previous meetings

12 July 2002 - Service provider competition in the broadband market - getting the regulatory framework right

19 September 2001 - 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. So as to stimulate further competition at the infrastructure level, Oftel has required BT to provide local loop unbundling, shared accessand 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 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 for 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, ( which 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 1 November 2002, NTL has around 430,000 cable modem customers (up from 102,000 in November 2001) while Telewest reports that it has over 235,000 cable modem customers (up from 70,000 in November 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 offers ISPs a number of key wholesale products. They 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. This Direction also required BT to trial SDSL if requested by an operator and a trial is now taking place.

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). BT further reduced the annual rental charge to £101 on 1 November 2002 and introduced a wider range of virtual paths to provide service providers with greater technical and commercial flexibility over the service delivered to end users.

Take-up

There are over 100 ISPs offering retail services based on BT’s wholesale ADSL products, including BT’s own service providers, BTOpenworld and BT Retail, which Oftel estimates have just over 50% of the DSL market.

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

As of 1 November 2002, Kingston Communications now offers service providers a range of wholesale products. They are:

• IPLine RapidTime Go: an entry level self-install ADSL product aimed at the residential market
• IPLine RapidBiz Solo: a single PC ADSL product for the business market. Not available as a self-install option
• IPLine RapidBiz Net: a range of business ADSL products allowing network connection. Available in 500, 1000 and 2000 kbps variants.

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

Prices

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.

ADSL rollout

By November 2002 work to upgrade exchanges for the delivery of ADSL wholesale products had been carried out by BT at 1120 exchanges, which cover 66% of households (up from 839 exchanges covering 50% of UK households in May 2001). 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 are only 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. Once the trigger level has been reached, BT will ask ISPs to convert registrations of interest into ADSL orders. 75% of registrations must be converted into orders before BT will enable the exchange.

Todmorden in West Yorkshire became the first exchange to reach its trigger level and has now been enabled to receive ADSL after 75% of registrations were converted into orders. Information on DSL 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 take-up

The number of end users with ADSL installed (using BT or a BT re-seller) stood at around 450,000 at 1 November 2002. Around 30% of these end-users are businesses.

There are a further 10,000 ADSL end-users who are customers of Kingston Communications.

Recent key publications

• Direction to resolve a dispute between BT, Energis and Thus concerning xDSL interconnection at the ATM switch. 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 http://www.oftel.gov.uk/publications/broadband/dsl/atmi0602.htm (21 June 2002)

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 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 taken action to resolve disputes.

At present, 103 physical and 53 distant co-location facilities have been completed. Work is ongoing at an additional 21 physical and 9 distant location sites. Approaching 2000 loops have now been unbundled.

All of the initial physical co-location products were based on a hostel, or smaller 'mini-hostel' design, that house LLU operators’ equipment in a separate area of a BT exchange. During the last year, LLU operators have instead been placing orders for co-mingling. 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. Oftel subsequently investigated the criteria applied by BT when rejecting a request for co-mingling. A revised set of criteria, with a number of inappropriate criteria either removed or amended, was published by BT following Oftel intervention. Prices of certain elements of co-mingling have also been reduced as a result of Oftel intervention and Oftel is currently consulting on its proposal to mandate lower prices for the delivery of power to LLU operators' 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. 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 issued a direction to BT in March 2001 allowing BT eight weeks to conclude negotiations with ten operators regarding the provision of cost orientated leased lines, more commonly known as partial private circuits ("PPCs"), which are the terminating segments that provide the link to the end user. The direction allowed BT a further six weeks thereafter to make the products available at all digital bandwidths. Constructive negotiations between BT and operators resulted in the operators signing commercial agreements with BT for the provision of PPCs.

BT launched PPCs in 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 , Oftel was asked by eight operators to to resolve disputes over a number of issues . Oftel published a draft direction covering some of these issues in December 2001 (phase 1). A number of issues, relating mainly to pricing and service level agreements, were left for a separate consultation (phase 2).

Oftel issued a final decision on the phase 1 issues in June 2002.

Oftel published the consultation document on phase 2 in September 2002. This document set out proposals for a new pricing and quality of service regime for PPCs. 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. The consultation closed in October , and Oftel is currently reviewing the responses, with a final decision expected by the end of the year.

Whether further action in the leased line market is required will be considered as part of Oftel's implementation of the new EU 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. Current broadband fixed wireless access base stations have the potential to cover around 12% of the UK population. These are mainly in urban areas.

Liberty Broadband (formerly Tele2) are currently offering commercial BFWA 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.

Your Communications has launched FWA services in the 28GHz range. 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 Radiocommunications 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 surrendered 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 companies and other 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 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.

In October 2002 the Radiocommunications Agency launched a consultation on the future process for awarding 28GHz licences. In line with recommendations made by Professor Martin Cave in the Independent Review of Spectrum Management it was 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. Twenty-four responses were received and those that are not confidential have been published on the Radiocommunications Agency’s website. A response is expected to be published early in the New Year.

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.

The UK has just amended the regulatory framework to permit the commercial use of wireless local area network technologies ("WLAN"), such as 802.11b, in the 2.4GHz deregulated spectrum. 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. Following consultation by the Radiocommunications Agency earlier this year, further deregulation in parts of the 5GHz band is expected shortly.

BT is currently undertaking trials of mesh radio technology as a means of delivering broadband services. Mesh radio works by each location having a small radio atenna that transmits on to the neighbouring user. Around 100 households in Pontypridd are taking part.

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 from later this year or the beginning of the next, as 3G handsets become more readily available. Some incumbent 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. However Hutchison 3G (under the brand name of '3') have soft-launched its services for trial users and plans to move to commercial sales shortly.

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 new licensing process for small satellite terminals.

There are now block licenses for small transmitting satellite terminals. SatClear is the new online clearance and registration system for small transmitting satellite earth station terminals. Licensees can also de-register terminals so, for example, they can accommodate subscribers who move location. SatClear also checks that a terminal location does not affect sensitive installations. If it does not, the licensee can register the terminal immediately.

These lighter touch processes were introduced to reflect the increase in networks using small interactive satellite earth station terminals.

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 2,500 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.

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.

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.

At the start of November 2002, BT advised that it would be withdrawing the one-way satellite trial due to lack of interest and an inability to find resellers capable of offering the product.

A number of other service providers continue to offer one-way satellite services using the PSTN as the return path.

Regional broadband issues

Regional Broadband Taskforce

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.