Contents

Chapter 1 Introduction

Chapter 2 Internet access - basic

Chapter 3 Internet access – broadband

Chapter 4 Comparison of broadband markets in France, Germany and the UK

Annex A Exchange rates and VAT rates

Annex B Detailed results for Internet access baskets (basic)

Annex C Detailed results for DSL and cable modem services

Annex D Overview of Wholesale ADSL in France, Germany and the UK

Annex E Further details of comparisons made for wholesale ADSL

Glossary

S.1 This report is an international benchmarking study of Internet access covering both basic dial-up access and broadband services (DSL and cable modem). The report covers Internet services in France, Germany, Sweden, United Kingdom and the US (the States of Ohio and California are used for dial-up services; the study covers a number of the largest providers of broadband who offer services across a range of States).

S.2 This study is a follow up to the study published by Oftel in December 2001 on dial-up and broadband Internet, based on August 2001 prices. Oftel has carried out the analysis and drafting of this report. An independent consultant, Analysys Ltd, has audited the models developed by Oftel used to generate the results contained in this report. The tariff data used in this report have been collected by consultants Total Romtec [April 2002 data has been collected by Oftel].

S.3 A more detailed comparison of the broadband markets, and of the wholesale DSL products available, in France, Germany and the UK has also been included.

S.4 Points that should be borne in mind in interpreting the results are detailed in paragraphs 1.8 – 1.11 of this report. This report is not intended in any way to be a buyer's guide to services in the UK.

S.5 The results presented are based on a snapshot of prices as at 26 February 2002. However, prices for DSL in the UK have reduced significantly since February and a partial update has been carried out based on April 2002 tariffs.

S.6 Tables 1, 2 and 3 show the results for the price index for basic Internet access (ie Internet access for consumers who have no particular requirement for access speed), for residential off-peak usage, residential peak usage and for business users respectively. This is expressed relative to the UK price index.

S.7 These results show that, based on the sample of ISPs/operators selected:

• for residential consumers, UK prices are cheaper than all other countries in the study by at least 9% for unmetered services. For peak limited usage the UK compares favourably with all countries and for off-peak the UK compares favourably with the US and France but prices are above those in Germany and Sweden; and
• for business consumers, UK prices for unmetered services are well below those in France and Sweden, but above those in Germany and the US. UK prices for limited usage services are above prices seen elsewhere.

S.8 In the UK and US, unmetered dial-up services are widely available. In the other European countries this is not the case, and broadband services are more cost effective than dial-up for consumers with high usage. The results are based on the average of the two cheapest available options, and hence include some broadband packages.

S.9 The results show a slight movement compared to the results in the August 2001 report:

• for residential services, UK prices are now below those in the US, this is due to the discontinuation of the cheapest US offerings. Price falls for metered services in Sweden and France have seen indexes for these countries move closer to that for the UK;
• for limited business use the UK still offers the most expensive services, and the gap has widened. This is due to price decreases in most countries and the discontinuation of the cheapest packages in the UK.

S.10 Table 4 and Table 5 show the results for the price level, price index (relative to the UK) and bandwidth provided for broadband residential and business services['Broadband' has been defined as an always on service with a downstream capacity greater than 128kbit/s]. The results are based on the average of the two cheapest deals available from the ISPs covered in this research (it is not possible to include all operators and this study may not represent the cheapest deals available in every case). Prices shown include the monthly subscription, as well as set up costs spread over three years. Results are presented both with and without cable modem offers included.

S.11 In April 2002, BT made significant cuts to the prices of their 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 has filtered through to retail prices. This has had a big impact on the results for the UK and a snapshot from April 2002 has been included. While it was not possible to recheck tariffs for all operators from other countries, tariffs for the two operators with the cheapest February prices have been rechecked as at April 2002. It was found that only the UK had any significant changes in broadband prices.

S.12 Table 4 shows the results for the price level, price index (relative to the UK) and (downstream) bandwidth provided for broadband residential services. The results are based on the average of the two cheapest deals available from the service providers covered in this study as at February 2002. The results for April 2002 are also included.

S.13 From Table 4 it is seen that as at February 2002:

• when cable modem services are included, prices in the UK are almost the same as in Germany and the US, and below prices in France; only in Sweden are prices lower than in the UK; and
• when cable modem services are excluded (ie a comparison of DSL services only) UK prices are higher than in all countries.

S.14 However, with the April 2002 price cuts:

• for DSL services only (ie cable modems excluded), prices in the UK have fallen by 22% and the UK is now cheaper than Germany and France. Although the UK remains more expensive than the US and Sweden, the index gap has narrowed; and
• the UK has improved only marginally when cable modems are included. This is due to the fact that the two cheapest broadband services in the UK are cable services. The slight drop in the index is a result of a decrease in price for one of the cable modem services.

S.16 The two cheapest services in the US, which are DSL services, provide a downstream speed (and an upstream speed) of 256kbit/s, whereas the UK services have downstream speeds of 512kbit/s. Comparing UK and US DSL services that both have a minimum downstream speed of 512kbit/s, the UK is cheaper than the US as at April 2002 (though it was more expensive than the US as at February 2002). The US does not offer services at 512kbit/s, and, setting the minimum speed at 512kbit/s, the average speed of the cheapest two US DSL services is 624kbit/s.

S.17 Table 5 shows the results for the price level, price index (relative to the UK) and bandwidth provided for broadband business services, for a variety of consumer types. The results are based on the average of the two cheapest deals available as at February 2002. The results for April 2002 are also included.

S.18 From Table 5 it is seen that as at February 2002:

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

• prices in Sweden and the US are around 15% cheaper than in the UK;
• prices in Germany are about 17% more expensive than the UK; and
• prices in France are significantly more expensive than in all other countries, but provide a higher bandwidth.

• for business services where a minimum geometric mean [The geometric mean is defined as: square root (downstream bandwidth x upstream bandwidth)] bandwidth of 500kbit/s is required:

• prices in Sweden and the US are very much lower than elsewhere;
• prices in the UK are about the same as France and Germany; and
• the bandwidth in the UK is about the same as in France and Sweden but less than in Germany and the US.

• for business services where a minimum geometric mean bandwidth of 1000kbit/s is required:

• services are only available in Germany, Sweden and the US;[While both France and the UK offer services with a downstream bandwidth of at least 1000kbit/s, these services are asymmetric and the geometric mean bandwidth is less than 1000kbit/s] and
• prices in Germany are much more expensive than Sweden or the US.

S.19 However with the April 2002 price cuts:

• for the most basic services available to business (ie where the business has a minimum bandwidth requirement of 129kbit/s), the UK has improved its relative position and prices are now cheaper than all other countries studied; and
• for business services where a minimum geometric mean bandwidth of 500kbit/s is required, the April price index shows that the UK’s relative position improves with the recent price drops and the UK is now 18% cheaper than France and Germany and the gap with Sweden and the US has narrowed.

S.20 The UK’s relative position for the most basic services in February 2002 is similar to that in August 2001, except that there has been an increase in French prices. When the April 2002 price falls are considered, the UK’s position improves and the price index relative to February 2002 is 32% lower.

S.21 When there is a minimum bandwidth of 500 kbit/s the UK’s relative position in February 2002 compared to August 2001 is similar relative to Sweden and the US, has improved against France and has deteriorated relative to Germany, where there have been price cuts. When April 2002 price drops are considered the UK’s position has improved relative to that in August 2001.

S.22 Data on take up is presented as a percentage of population (using OECD population figures for 1999) in Figure 1. Broadband take-up rates in each country are shown as at end 1999, end 2000 and end 2001.

S.23 While current levels of broadband take-up are low (below 5% of population) in all of the countries benchmarked, take-up in the US and Sweden is markedly higher than in the other European countries. It is noted that all countries tend to show a period of relatively slow take-up initially, followed by acceleration in the take-up rate. It is noted that broadband services were launched later in the UK than in other countries and this later start should be borne in mind when viewing this chart.

Figure 1: Broadband take-up per 100 population by country for end 1999, end 2000 and end 2001.

S.24 Oftel has undertaken a more detailed analysis of the broadband market in France, Germany and the UK, looking in particular at the availability and pricing of end to end wholesale products['End to end wholesale products' are defined as products offered by the incumbent allowing provision of a DSL service from an end user, across the incumbent network, right up to the service provider's point of presence]. Key conclusions are:

• while penetration of broadband services in the UK is behind that in France and Germany, the UK market is more competitive both in terms of infrastructure competition and service provider competition;
• prices for end to end wholesale DSL products in the UK are below both current French prices and the new prices proposed by France Telecom for residential DSL (note the ART, the French Telecoms regulator has concerns that the new prices proposed are anti-competitive), while there are no end to end wholesale DSL products in Germany;
• the relationship between wholesale and retail prices differs by country and by service provider (SP):

• BT's wholesale prices allow SPs a ‘margin’ compared to their retail prices (ie wholesale prices clearly below SP retail prices), with a range of SP prices offered;
• France Telecom's current wholesale prices do not allow a SP margin (based on ART's assumptions);

the situation in Germany is less clear, as wholesale prices are not published and appear to differ substantially for different SPs;

• wholesale DSL products in the UK are clearly transparent and non-discriminatory, while this is more difficult to assess in France and Germany; and

• there is a more straightforward ‘one-stop shop’ for consumers in the UK compared to Germany, and to some extent France.

1.1 Oftel’s aim is to provide the best possible deal for telecommunications customers in terms of quality, choice and value for money through effective competition. International comparisons of telecoms services are one way of assessing the achievement of this aim.

1.2 Oftel carries out regular reviews of the major telecom markets to determine the appropriate level of regulation for the future. Regular benchmarking exercises allow a time trend to be developed, which provides greater information than a single snap shot. The results in this report will form part of the data input for future reviews.

1.3 This study focuses on comparing the cost for representative users for Internet access in each country using a ‘basket’ methodology. Oftel has carried out its own benchmarking work (as opposed to using alternative published sources) to ensure that the methodology is rigorous and robust and that it addresses the following issues:

• usage baskets need to reflect a range of patterns of use representative of different groups of consumers; and
• consumers have a potentially wide range of choices for their telecoms services:
• consumers have a choice of competing operators all of whom will offer different packages; and
• each operator may offer a variety of different packages and discount schemes targeted at different segments of the market.

Price comparisons need to take into account the range of products available to the consumer.

1.4 The following countries are included in the analysis:

• France;
• Germany;
• Sweden;
• UK; and
• US (the States of Ohio and California are considered for dial-up Internet access; the study covers a number of the largest providers of broadband who offer services across a range of States).

1.5 This study is a follow up to the study published by Oftel in December 2001, which was based on tariff data valid as at August 2001. A list of the ‘tariffs valid at’ date and date of publication of previous studies is given in Table 1.1;

1.6 The analysis and drafting of this report has been carried out by Oftel. The models developed by Oftel used to generate the results contained in the report have been audited by an independent consultant, Analysys Ltd, who confirm the following:

• the models are logically sound (ie they correctly implement the methodology described in this report); and
• the tariff data have been checked and have been correctly entered and interpreted.

1.7 Data has been collected from the vast range of tariff packages available to residential and small/medium sized businesses, for major operators and service providers in each country as at February 2002. The tariff data used in this report have been collected by consultants Total Romtec. Oftel has also collected additional data for April 2002.

1.8 There are a huge range of operators and service providers offering services to consumers and it is not possible to cover all packages on offer. In addition, it is not possible to fully capture all aspects of innovative tariff products. While it is believed that the sample chosen is fully representative and covers the range of offers available by country, the possibility that consumers have access to additional offers outside the range calculated for the sample used in this report cannot be excluded. Not all tariffs included will be available to all consumers in a particular country.

1.9 The objective of this report is to provide a comparison between countries for a range of consumer usage profiles. A range of profiles is chosen to be illustrative of the most frequent types of customer calling patterns, but is not comprehensive. Prices are based on a snap shot as at 26 February 2002. Although providing a sound overall picture, the comparison of companies within a country should not be taken as necessarily being representative for an individual consumer.

1.10 The analysis is based on a basket methodology, which allows prices to be compared across different operators in different countries. It is not, however, intended to be a buyer’s guide to services as:

• it provides only a snapshot of the price levels for a continually changing set of price packages; and
• the residential or business consumer will have to use more specific usage information in order to determine the best option for that person or business.

1.12 There are three subsequent chapters which present the results for:

• Internet access – basic (Chapter 2);
• Internet access – broadband (Chapter 3); and
• comparison of broadband markets in France, Germany and the UK (Chapter 4).

1.13 In general, the methodology used is very similar to that used in previous reports. The methodology is designed to allow a comparison to be made of dial-up services and broadband services as well as allowing a comparison to be made of the gap between unmetered dial-up and broadband products in each country.

2.1 This chapter covers ‘basic’ Internet access, ie access to the Internet by consumers who have no requirement for ‘high speed’ access. Mainly this will mean PSTN dial-up access, as this is usually the cheapest option. However, there are circumstances where other access mechanisms may be cheaper. In countries where unmetered PSTN dial-up access is not available, broadband access may be a cost effective alternative for consumers with high usage. In this chapter a range of access mechanisms are considered (ie PSTN and ISDN dial-up, DSL and cable modem) and the results then focus on the cheapest available options. Price comparisons for consumers requiring greater access speed, and the ‘always on’ facility, provided by DSL and cable modem, are presented in Chapter 3.

2.2 In January 2002 Oftel published an Effective competition review for dial-up narrow band Internet access and concluded that the retail market for dial-up access is effectively competitive. Past benchmarking studies formed part of the data input to this review. This study also forms part of the ongoing monitoring of the market for dial-up Internet access and the resulting time series will be used in subsequent reviews.

2.3 The results provide an update of the results presented in the December 2001 report (based on prices as at August 2001). This study is the fifth in a series that started with a study carried out by Teligen for Oftel published in May 2000 (based on prices as at February 2000).

2.4 This chapter follows broadly the same format as the previous reports and shows:

• a summary of developments in the UK market over the last six months;
• a summary of the methodology used;
• results for business and residential consumers showing:
• price indices for a range of baskets;
• price movements over the last six months;
• charts of the spread of offers by country;
• sensitivity analysis;
• detailed results; and
• conclusions.

2.5 Detailed results for all the packages modelled are shown in Annex B.

2.6 Results from Oftel’s latest consumer research (conducted in February 2002) show 46% of homes are connected to the Internet, compared to 39% in August 2001. Table 2.1 shows that:

• there has been an increase in the number of people subscribing to a unmetered service and a decrease in the number of people paying for calls only; and
• the average number of usage hours has increased for partially unmetered services and is static for unmetered services.

• the business market has been stable over the period August 2001 to February 2002;
• medium sized businesses are more likely to subscribe to an unmetered service; and
• most small and medium businesses use dial-up (PSTN or ISDN) to connect to the Internet.

2.8 The methodology remains as in the December 2001 report and details are not repeated here.

2.9 The price index (based on the average of the two cheapest packages from different operators in each country) is presented in Table 2.3 for residential off-peak baskets.