Oftel has published a consultation document setting out its initial analysis of the market for dial-up narrowband Internet access.

Oftel regularly undertakes effective competition reviews such as this one which assess the state of competition in different markets and allow Oftel to judge whether existing regulation is still appropriate, or whether it needs to be adjusted.

The report highlights the large growth in the takeup of Internet services in the UK. Internet traffic now accounts for a third of all call minutes originating on the public switched telephone network (PSTN). Around 10 million UK households (40 per cent) have Internet access, up from six million a year ago.

The review measures competition in three markets: dial-up Internet retail service provision, wholesale call origination and wholesale Internet call termination.

Oftel initially concludes that:

• competition is effective in the retail market and UK consumers are getting a good deal;
• wholesale Internet call termination appears to be an effectively competitive market, although the nature of the market is changing and this has the potential to affect competition; and
• the lack of competition in wholesale call origination is being adequately addressed by existing regulation.

Retail dial-up Internet access

UK prices compare with the best in the world. There is a wide range of retail services available to consumers and the UK is the first market in Europe to offer consumers competitive unmetered packages.

UK consumers are generally satisfied with the quality of service they receive. However, concerns about the quality of customer service they receive and the availability of information to help them to choose the right package may need addressing. The consultation document challenges the industry to come forward with self or co-regulatory proposals to improve customer service.

Wholesale call origination

The wholesale call origination market is not effectively competitive:BT has a large market share, estimated at over 80 per cent. There is some competition in infrastructure but continued network charge controls and the availability of quality wholesale products such as FRIACO (Flat Rate Internet Access Call Origination), are essential to maintain competition. Oftel has not proposed any additional regulation.

Wholesale Internet call termination

Wholesale Internet call termination appears to be a more diverse market than call origination in terms of market shares. Barriers to entry are less than for call origination and wholesale prices for a wide range of Internet call termination products appear to be at a competitive level. However, the cost of providing Internet call termination is changing and an IP interconnection product might be needed to enable other operators to compete with BT and achieve greater levels of network efficiency.

Next steps

Before making a final conclusion, Oftel will receive comments from consumer groups and industry. In addition, Oftel will be asking industry for further market information, as outlined in the report, to improve its analysis of effective competition in each of the three markets. There will be a three-month consultation period until the end of October 2001. Oftel also intends to consult on competition in a third wholesale market needed by ISPs to offer retail services, known as 'Internet Connectivity'.

Oftel is due to publish its final statement on effective competition in dial-up Internet access in the New Year.

For further information contact Lucy Rhodes (tel: 020 7634 8836/e-mail: lucy.rhodes@oftel.gov.uk).