Oftel has published its final conclusions on effective competition and appropriate regulation in dial-up Internet access.

Oftel research shows that that 11 million UK homes - 45 per cent - are now connected to the Internet, the majority using dial-up access.

In a detailed piece of analysis carried out over a year, Oftel considered levels of competition in the retail dial-up Internet access market and three related wholesale markets: call origination, Internet call termination and Internet connectivity.

Retail Internet access market

The UK has a competitive retail dial-up Internet access market with a wide range of services available to consumers at low prices. Unlike comparable European countries, UK consumers benefit from unmetered access, with four million homes now using unmetered packages.

Oftel does not currently impose formal regulation in the retail market and has concluded that the absence of formal regulation to promote competition in this market is still appropriate.

However, the review identified scope for improvement in ISPs' customer service and consumers' understanding of the market.

Oftel is currently promoting industry codes of practice covering all aspects of customer service.

The onus is on industry to produce an effective code of practice to cover its relationship with customers, including procedures for dealing with complaints. However, if the industry fails to deliver, OFCOM will have the power to step in and put in place effective consumer protection measures.ISPs will also be able to sign up to the Telecoms Ombudsman scheme alongside fixed and mobile operators. Oftel believes that membership of the Scheme will give users increased confidence in companies.

Research shows that some consumers are dissatisfied with the information available to them about going online, and that only half of Internet consumers shop around before choosing an ISP or Internet package. Oftel will produce guidance for consumers connecting to the Internet later this year. The guidance will encourage a better understanding of the types of packages and different payment schemes available, and aims to enable consumers to take advantage of opportunities resulting from competition.

Wholesale call origination

Oftel concluded that the wholesale call origination market is not effectively competitive. BT has market power and an estimated market share of over 80%.

Oftel currently regulates the call origination market by requiring BT to make suitable wholesale interconnect products available, notably FRIACO for unmetered Internet access, and through regulated network charge controls.

Continued network charge controls and the availability of wholesale products are essential to protect consumers and prevent BT leveraging its market power into related markets, in particular the Internet call termination market.

Oftel does not propose any further regulation of the market at this stage but will ensure that any concerns operators have about the existing FRIACO interconnection products are addressed.

Wholesale Internet call termination

The review concluded that the wholesale Internet call termination market is not effectively competitive and BT has market power. Existing regulation in the wholesale Internet call termination market requires BT to publish charges and not to discriminate or prefer unduly. Oftel has decided not to remove these obligations, although it was requested to do so by BT.

However, Oftel is not proposing any additional regulatory action in the market at this stage as it is currently facilitating industry negotiations on the development of a wholesale FRIACO IP interconnection product , Oftel believes that introducing any further regulation before a solution is reached would be disproportionate, as FRIACO IP interconnection may have an effect on BT's market share in Internet call termination and on the high barriers to entry that currently characterise the market.

Wholesale Internet connectivity

Oftel concluded that the wholesale Internet connectivity is an effectively competitive market. Wholesale prices are falling, with a considerable number of suppliers with no one operator having market power. This confirms that the absence of formal regulation in this market is still appropriate.

Oftel will continue to monitor market developments in dial-up Internet access and is committed to initiatives to support Internet takeup and improve consumer awareness.

For further information on the dial-up Internet review contact Lucy Rhodes (tel: 020 7634 8836 / lucy.rhodes@oftel.gov.uk) or Justin Moore (tel: 020 7634 8859 / justin.moore@oftel.gov.uk).