Chapter 5

Wholesale inputs to Broadband market

Introduction

5.1 This chapter considers the wholesale products that sit behind some of the DSL retail services covered in Chapter 3. This helps to put BT's products (and their prices) in context and provides insight into the retail market for broadband. In particular comparisons are made of:

• wholesale DSL products offered by the incumbent operators in France and the UK; and
• local loop unbundling in each of the benchmarked countries.

5.2 The June 2002 report provided an overview of the wholesale DSL products available from incumbent operators in France, Germany and the UK, including price comparisons of "like for like" products. The current report provides an update describing developments in the UK and France, and presents up to date price comparisons for these two countries. In Germany the situation has not changed since the previous report, and there are still no end to end wholesale DSL products. The comparisons presented last time for Germany remain the same and are not reproduced here.

5.3 Comparisons for unbundled local loops, as a means of providing broadband services, are also considered here. This is a new addition to the benchmarking report.

Incumbent wholesale and retail DSL products

5.4 This section describes developments in the types of wholesale product available in France and the UK and presents updated price comparisons:

• for wholesale DSL products; and
• for the relationship between wholesale and retail DSL products.

5.5 The comparisons have been carried out with a view to:

• understanding the types of wholesale products available elsewhere, and the pricing of these products, to put BT's wholesale DSL products in context;
• understanding better the results presented in chapters 3 and 4 regarding retail prices and take-up; and
• allowing Oftel to assess the validity of claims made elsewhere regarding the relative pricing of BT's wholesale products.

Update on wholesale DSL in France

5.6 The June 2002 benchmarking report referred to the fact that France Telecom had submitted proposed price reductions for its wholesale DSL products to the ART but the ART had requested revisions as it had concerns that the proposed prices were anti-competitive. The ART have now approved a new set of prices, which came into effect in Oct 2002. The wholesale price comparisons presented last time have been updated with these new prices.

5.7 There are a number of aspects to the changes announced, including:

• lower prices for end to end wholesale services (including transport at the IP level) - on average prices have fallen by 25%;
• lower prices for wholesale services involving interconnection at the ATM level - the price reduction here is approximately 40% and the analysis presented by the ART suggests there is potential for operators using ATM interconnection to compete with those using the end to end wholesale products;
• additional services have been made available for residential customers (one with lower speed and one with higher speed);
• changes to the structure of charges. One effect of this is to reduce the difference in prices paid by different ISPs (prices are now less sensitive to the volume of subscribers served by an ISP); and
• changes to the terms of providing service. The removal of the need to reserve services in advance will lead to a reduction in the overall charges incurred by ISPs.

5.8 Further details are given in annex D.

5.9 These changes were implemented after the tariff collection date of 20 August 2002 for retail DSL services and hence any impact on retail charges will not be captured until the next benchmarking report, which is expected to be based on February 2003 prices. However, it appears that, for example, Wanadoo's price for a 512kbit/s residential service as at end Oct 02 had not changed in the light of changes to the wholesale price. The June 2002 report illustrated that, at that time, the wholesale price appeared to be very close to the corresponding retail price for the residential DSL service. The initial effect of the wholesale DSL price reduction appears to be to allow a greater margin for ISPs, rather than reducing costs to end users.

Update on wholesale DSL in the UK

5.10 The previous report included the price reductions for BT's IPStream products (providing end to end wholesale services) in April 2002. A new product allowing interconnection at the ATM level has been required by Oftel. It is expected this product will be used to deliver wholesale and retail services in the future. Further details are given in the annex. However, the price comparisons presented here focus on end to end wholesale products (IPStream in the UK), as these continue to be most widely used.

Wholesale DSL price comparisons for France and the UK

5.11 The price comparisons presented in the June 2002 report have been updated using the new France Telecom wholesale DSL prices. The figures presented are based on ART's estimates of overall charges paid by ISPs. These estimates require a number of assumptions to be made, such as the number of end users served by a service provider.

5.12 Figures 5.1 and 5.2 illustrate the updated comparisons for residential and business wholesale DSL services (the comparisons are based on the closest comparable services in France and the UK). The charges calculated include both the monthly charge and an element of one-off charges (which are written off over a 3 year period). Prices prior to the October 2002 change in France are included for comparison for the residential service. However, the ART did not provide an estimate of charges for the business service pre-October 2002 and figure 5.2 shows the current price only. These figures show:

• for the residential service (figure 5.1), BT's charges remain lower than France Telecom's, though the gap has narrowed. France Telecom's service is about 20% more expensive; and
• for the 1Mbit/s business service (figure 5.2), France Telecom's charges are cheaper than BT's. BT's service is approximately 17% more expensive.

Figure 5.1: Comparison of wholesale ADSL product prices for residential services - IPStream Home "equivalent", UK vs France

Figure 5.2: Comparison of 1Mbit/s wholesale ADSL product prices for business services - IPStream Office 1000 "equivalent", UK vs France

Comparisons of wholesale and retail DSL prices

5.13 Comparisons of wholesale DSL prices in the context of retail DSL prices have also been updated. Figures 5.3 and 5.4 show the incumbents' retail price together with the wholesale price for residential and business products. This illustrates the ISP "margin". Figure 5.3 shows that the initial effect of the wholesale price reduction in France has been to widen the ISP margin on the residential product, rather than to reduce end user prices. The ISP margin in France is somewhat less than in the UK. This comparison, however, applies to the incumbents' ISPs only.

5.14 For business services, the current retail price in France for a service providing 1Mbit/s downstream is significantly less than that in the UK (for incumbent ISP offers). The ISP margin in the UK is significantly higher than in France.

Figure 5.3: Comparison of residential end user prices and SP margin (UK£, excl VAT) - UK vs France

Figure 5.4: Comparison of business end user prices (1Mbit/s service) and SP margin (UK£, excl VAT) - UK vs France

Unbundled local loops

5.15 International comparisons for unbundled local loops are considered in this section (these have not been considered in Oftel's previous International Benchmarking reports). The key factors that are compared are:

• the price of unbundled local loops;
• the uptake of unbundled local loops; and
• the availability of services based on unbundled local loops as measured by the percentage of main distribution frames (MDFs) that have competing operators' equipment installed.

5.16 Comparisons include both fully unbundled local loops and shared access (see glossary for definitions).

5.17 Unbundled local loops may be used to provide voice services as well as broadband services. In Germany and the US, both of which have a longer history of local loop unbundling (LLU) than the other benchmarked countries, the majority of unbundled loops are used for voice rather than DSL. The focus of this report is on provision of DSL.

5.18 Use of unbundled local loops is one way of providing broadband service. The comparisons presented in this chapter illustrate the relative importance of services provided in this way both within and between countries. They provide additional background to the retail broadband comparisons presented in chapters 3 and 4, and compliment the comparisons of wholesale DSL presented earlier in this chapter.

5.19 While for the purposes of this report LLU take-up is considered in the context of take-up of DSL and cable modem Internet services, a wide variety of DSL services can be provided over LLU. Services provided range from products aimed at residential/small business, which compete directly with incumbent based ADSL services, to more specialised SDSL services for larger businesses which, if the contention ratio is low, may provide a service similar to private circuits.

5.20 While uptake of LLU is currently low, it is expected to increase over time and it is intended to monitor developments at both the retail and wholesale level.

5.21 Oftel has previously benchmarked UK prices for unbundled local loops (both fully and shared access) against other European countries and has used this information as part of the process for determining BT's prices. The comparisons presented here use the smaller range of countries for which more general comparisons of price and availability of broadband services have been made.

5.22 A brief overview of developments in each country is given, followed by the quantitative comparisons.

France

5.23 The number of unbundled loops used for DSL services was approximately 1,100 (of which 60 were shared access) at the beginning of October 2002. LLU is being used mainly to provide SDSL and ADSL services to businesses. The ART published a decision in April 2002 which reduced prices for unbundled and shared access loops from May 2002, making French prices for LLU amongst the lowest in Europe.

5.24 COLT Telecom is the largest operator in France using LLU. It offers a range of services for businesses:

• SDSL services with speeds from 128kbit/s to 2Mbit/s and ADSL services with downstream speeds up to 6Mbit/s;
• voice over DSL; and
• a leased line service based on SDSL technology.

5.25 As at September 2002, Colt claimed a total of 720 unbundled lines providing services as follows: 637 for SDSL or ADSL; 34 for voice over DSL and 49 for leased lines using SDSL.

5.26 Other companies are also beginning to offer service using LLU. LDCOM has announced its intention to invest 100 million Euros in LLU before the end of 2003 and appears to be providing a wholesale service to companies such as 9 Telecom. Easynet is also offering business services over LLU. Free has started to offer a residential product from November 2002, using shared access.

Germany

5.27 Local loop unbundling has been available since 1997 in Germany (the first European country to make LLU mandatory). The majority of unbundled loops are, however, used to provide voice services. ECTA estimate that as at Q3 2002 there were around 800,000 unbundled loops, of which approximately 200,000 were used to provide DSL services.

5.28 QSC is the largest user of LLU for provision of DSL services. QSC use unbundled local loops to provide both wholesale and retail SDSL and ADSL services. QSC focuses on business customers, although residential services are also offered. A wide range of services are offered, including symmetric services with speeds from 144 kbit/s to 2.3 Mbit/s. In April 2002, QSC claimed to be offering service in more than 40 of the largest cities in Germany, reaching more than 20 million potential users (approximately 25% of the population). QSC had close to 23,000 lines as at Dec 2001.

Sweden

5.29 The number of unbundled local lines was estimated by ECTA (as at June 2002) to be 5,000 lines of which 3,400 were fully unbundled and 1,600 shared access.

5.30 Song Networks is the most significant of those operators that offer DSL over unbundled local loops, although (in common with a number of other operators) they also provide broadband services over their own access network.

UK

5.31 The number of unbundled local lines was approximately 1,600 as at October 2002, up from 600 at end June 2002. The loops are mainly used to provide SDSL and ADSL services to business.

5.32 Easynet appears to be the largest user of LLU, with over 850 customers taking services provided in this way at the end of August 2002. Easynet offer a range of ADSL (up to 8Mbit/s downstream) and SDSL (up to 2Mbit/s) services over unbundled loops.

5.33 Fibrenet has also deployed SDSL, marketed as an alternative to BT's leased line services. So far Fibrenet has deployed 30 out of a potential 221 targeted exchanges to offer 500 kbit/s to 2Mbit/s DSL.

5.34 Bulldog Communications, another operator involved in using LLU in the UK, is trialling the provision of SDSL services to BT Wholesale Markets. Under this arrangement, Bulldog Communications supplies BT Wholesale Markets with SDSL services via LLU. BT Wholesale Markets then markets these services to BT Retail and other licensed operators, who in turn provide services to end users. For example, Eclipse are offering trial SDSL services (with speeds from 250kbit/s to 2Mbit/s) in this way.

USA

5.35 Local loop unbundling has been available for some time in the US, and is still mainly used for the provision of voice services. FCC figures for the number of unbundled local loops show that there were over 9 million of these at the end of 2001.

5.36 A number of operators provide (or have previously provided) DSL service using LLU, the major ones being Covad, Northpoint and Rhythms. Of these three, Covad is the only company continuing to provide service. Covad emerged from Chapter 11 bankruptcy at the end of last year. Covad offers a range of SDSL and ADSL services to business and residential consumers: symmetric service is available from 144 kbit/s to 1,500 kbit/s and ADSL services up to 1,500kbit/s downstream. The number of end users using Covad services was around 360,000 at June 2002, and has been relatively flat for a number of months.

5.37 The total number of unbundled local loops used to provide DSL services is not known. The number of Covad subscribers provides a lower limit to this figure. Other operators providing service in this way are thought to have much smaller numbers of customers.

Cross country comparisons

Price

5.38 For both fully unbundled local loops and shared access, the cost of monthly rental together with an element of the connection charge (spread over 36 months, consistent with the retail price benchmarking) is compared across the benchmarked countries in Figures 5.5 and 5.6 respectively. Figures for shared access, and for connection charges in the US are not shown (as these were not easily available).

5.39 These comparisons should be treated with care. For example, the level of service offered by incumbents providing unbundled local loops varies between countries, and this will impact on the charges.

5.40 The prices for connection included in the figures are for LLU connection for a first existing line. These comparisons are partial, in that charges differ according to the circumstances, for example there may be different rates for an existing line compared to a new line, for the first compared to subsequent lines. There may also be disconnection charges.

Figure 5.5: Price comparisons for fully unbundled local lines - monthly charge (including an element of connection charge )in £ per month

Figure 5.6: Price comparisons for shared access - monthly charge (including an element of connection charge )in £ per month

Overall average is a straight (unweighted) average over the figures for the benchmarked countries.

5.41 For both fully unbundled local lines and for shared access, UK prices per month are above the prices seen elsewhere. France, Germany and Sweden all have charges which are among the lowest charges in the EU and the UK's prices would be expected to compare more favourably against an average for a wider range of European countries. For shared access, prices in France are particularly low since the May 2002 price decrease.

5.42 In the US prices for fully unbundled lines vary widely with Ohio having the lowest rate ($7.0, or £4.8, a month on average) which is less than a third of the highest rate in West Virginia ($24.6, or £16.7, on average) (see "A Survey of Unbundled Network Element Prices In US" By Billy Jack Gregg, http://www.nrri.ohio-state.edu/programs/telcom/pdf/Total0702.pdf). Charges also vary within State according to geographic zone. For example, in Ohio charges vary from $5.9 to $9.5 (or £4.0-£6.5), while in California rates vary from $8.8 to $19.6 (£6.0-£13.4). The US wide average price (based on a weighted average using the number of incumbent access lines) is close to the UK price.

Uptake

5.43 Uptake figures for LLU are presented in figure 5.7 and are expressed per 100 population, per 100 broadband lines and per 100 incumbent DSL subscribers.

Figure 5.7: Uptake for LLU: number of LLU lines per 100 population, per 100 Broadband subscribers and per 100 incumbent DSL lines

5.44 The figures for overall uptake of LLU per 100 population are extremely small everywhere. Expressed per 100 incumbent DSL lines, LLU uptake reaches 8 per 100 in Germany and over 7 per 100 in the US. These figures are also relatively small.

Availability

5.45 Availability of DSL services over LLU is presented in terms of the percentage of MDF's where competitors have installed equipment. The percentage of homes / businesses to which DSL is available over LLU is likely to be much higher than the percentage of MDFs. Figures are presented in table 5.2 only for the European countries as equivalent data for the US is not available. However, for comparison, Covad Communications claims to have deployed a network that reached 40-45% of all homes and businesses by Nov 01.

Table 5.2: Availability of DSL services over LLU, measured in terms of MDFs with competitors equipment installed.

Source: ECTA.

* figures as at: Jun 02 for France, Oct 01 for Germany, May 02 for Sweden, June 02 for UK.

5.46 On this basis, Germany has the highest availability for the European countries. Availability remains relatively low in all three of the other European countries.

Conclusions

5.47 The wholesale DSL price comparisons for the UK and France have been updated and show:

• for residential DSL services France Telecom's wholesale price is above BT's;
• for business DSL services with 1Mbit/s downstream, France Telecom's wholesale price is below BT's;
• the margin for the incumbent's ISP is greater in the UK than in France for both the residential and the 1Mbit/s business service.

5.48 LLU has been compared on the basis of a number of measures across the benchmarked countries. In all countries, DSL services over unbundled local loops are starting to be provided to end users, particularly business users, increasing the range of broadband services available (eg increasing the range of speeds and contention ratios available). Take-up is currently low in France, Sweden and the UK, but is growing. In Germany and the US take-up is higher, accounting for around 8 per 100 incumbent DSL lines. "Availability", measured as the proportion of MDFs where competitors have installed equipment is higher in Germany than in the other European countries. In the UK, the infrastructure is now in place to allow services to be provided to much larger numbers of end-users. Further infrastructure is also expected to be rolled out. Given this, it is expected that take-up figures will increase over time. This will also apply elsewhere. Prices in the UK for LLU (both fully and shared access) are somewhat higher than the other countries in this study.

5.49 Take-up for LLU will be influenced by a number of factors which will differ by country. These include the availability (and price etc) of wholesale DSL and/or DSL interconnection products from the incumbent operator, and the extent of competition from alternative networks (such as cable). Of the European countries, Germany has the greatest extent of LLU, but lacks wholesale DSL products and competition from other networks.

Chapter 6

Alternative Broadband Technologies

Introduction

6.1 The previous chapters have focused on comparisons for the main technologies currently used to deliver broadband Internet access to consumers in the benchmarked countries, ie DSL and cable modem. There are a number of alternative technologies that can provide broadband Internet access, in particular:

• broadband fixed wireless access (BFWA);
• broadband satellite access;
• Fibre to the home (FTTH);
• mobile higher bandwidth access (3G); and
• other technologies such as powerline and free space optics.

6.2 The term "alternative" technology is used to refer to any of these. However, the main focus of this chapter is BFWA and broadband satellite access as these are the technologies that are currently most widely available across the benchmarked countries. The other technologies listed above are briefly described, and country specific examples given.

6.3 In order to provide a complete picture of broadband services, these alternative technologies need to be considered in the benchmarking comparisons. Services provided using these technologies are currently in their infancy with very few subscribers actually using them (with the exception of FTTH which is relatively widely used in Sweden). However, they may well increase in importance over time, and it is useful to start to track these services from early in their development.

6.4 This is the first time Oftel has considered international comparisons of these services. Given the early stage of the market development, full comparisons of price, availability and take-up are not presented. This chapter provides an overview of the market in each country considering the extent to which products are commercially available and some indicative prices. This is an area where changes may occur rapidly. The information has been collected over the period August to October 2002, with tariff data rechecked in early November 2002.

6.5 It is intended that services using these technologies are monitored with a view to incorporating them more fully in the benchmarking comparisons once they are better established. The current report provides a starting point for tracking future developments.

6.6 Subsequent sections in this chapter consider:

• an overview of the technologies and their availability in each country;

• the current availability of BFWA in each country with some indicative price comparisons;
• the current availability of broadband satellite access in each country with some indicative price comparisons; and
• conclusions.

Overview of Alternative Technologies

6.7 A brief overview of the different alternative technologies is given below, followed by a comparison of availability by country.

Broadband Fixed Wireless Access (BFWA)

6.8 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. Provision of service may requires "line of sight" (ie there is an unobstructed path direct from the user’s terminal to the base station).

6.9 Most BFWA services use licensed spectrum. In all of the benchmarked countries licences have been awarded allowing regional or national coverage.

6.10 BFWA services are offered commercially in all of the countries covered in this report, with the exception of Sweden where networks are currently being rolled out. Generally, roll out of these services has been slower than expected when licences were awarded and in some countries licences have been revoked due to build obligations not being met. BFWA currently accounts for a very small proportion of all broadband services.

6.11 Service offerings vary depending on the radio frequency being used (a side effect of less bandwidth being available in the lower frequency bands). The downstream speeds found for this study vary from 256kbit/s to 6Mbit/s, comparable to the speeds available for DSL and cable modem services.

6.12 These services will often be provided in urban areas where they will compete with DSL/cable modem services. However, it is also possible that BFWA services may be used to extend broadband services by providing the "in-fill" of gaps in urban broadband coverage (eg beyond the reach of DSL services over copper - either because the copper local loops are too long or the density of demand at the exchange is too low to make upgrading for DSL services economical), and providing broadband access to town-edge and rural communities. In the UK, for example, BT has expressed interest in providing BFWA service in order to extend the availability of broadband services.

6.13 While most of the BFWA currently available is "point to multipoint", an alternative system is "mesh radio". This works on the principle that a small radio antenna installed at each household or business, transmits on to neighbouring users to form a network or "mesh", doing away with the need for large antennae or masts used to transmit to each individual customer in traditional point to multipoint wireless solutions. Potentially this could provide community networks in rural areas. Mesh radio is being trialled by BT in the UK at the moment, using spectrum under a temporary test and development licence.

Broadband Satellite Access

6.14 Some satellites in orbit around the Earth can offer broadband services. Data transfer has traditionally been in one direction only ('one-way' satellite providing a broadband link downstream from the network to the end user, with the upstream link provided over a fixed PSTN/ISDN line), however new developments have enabled a satellite return path to be used ('two-way' satellite).

6.15 Two-way services are commercially available in all of the benchmarked countries. Downstream speeds were found to vary between 256kbit/s and 8Mbit/s, so are comparable to those provided over DSL and cable modems.

6.16 Where services are provided, coverage will in principle be national or wider, eg Europe wide. However, consumers require "line of sight", which will limit availability in some cases (eg behind tower blocks or in deep sided valleys). This is not expected to be a significant problem, though determining the exact coverage is likely to be difficult.

6.17 It is expected that, at the moment, satellite services will be of most interest to those unable to obtain fixed-line services, as satellite services generally appear to be more expensive. In Germany, Deutsche Telekom is offering a one-way satellite service to fill in the gaps left by its DSL coverage and BT is offering two-way.

Fibre to the home or building (FTTH/FTTB)

6.18 FTTH (or FTTB) provides broadband services over an optical fibre link to the consumer's home (or building), replacing the conventional copper pair or coaxial cable. Of the benchmarked countries, this is only available to any extent in Sweden and the US. This potentially allows services with higher bandwidth than those offered over DSL and cable modems.

6.19 In Sweden "fibre to the building" is already an important technology (LAN-Ethernet services are provided within the building to each home). There were over 150,000 lines at mid 2002, equivalent to approximately 1 in 4 broadband lines, or 1.7 per 100 population. The main operator is B2. The price of services is comparable to prices for DSL or cable modem in Sweden, and speeds of up to 10Mbit/s are offered.

6.20 In the US there is also some FTTH. The FCC reports approximately 500,000 FTTH lines as at the end of 2001, accounting for approximately 4% of all high speed lines (ie those with speed greater than 200kbit/s in one direction), or 0.18 per 100 population. Of these, 26% are reported to offer speeds greater than 2Mbit/s in both directions and only 0.6% of these lines are reported to provide service to residential customers.

6.21 In the other benchmarked countries there is no significant FTTH and this technology is not considered further in this report.

Mobile Higher Bandwidth Access (3G)

6.22 The Universal Mobile Telecommunication System ('UMTS') is a so-called "third-generation (3G)," broadband, packet-based mobile radio system to be deployed in Europe, and throughout the world, for the transmission of text, digitised voice, video, and multimedia to mobile computer and phone users. 3G mobile services will be provided over spectrum recently acquired by mobile operators and requires new networks to be built. This will allow broadband services to be provided to mobile devices.

6.23 The likely data rates range from about 64-144 kbit/s for fast moving users in rural areas (depending on the quality of service), up to 384 kbit/s for slow moving users in urban/suburban areas.

6.24 While these services may in some cases substitute fixed-line services, they will also complement and provide additional functionality, allowing for example, access to broadband Internet "on the move" and access to a range of location based services. Generally speeds are likely to be lower, prices may well be higher and tariffs are unlikely to be unmetered. The nature of 3G services is, therefore, somewhat different to the other broadband services covered in this report, and it may not be appropriate to look at direct comparisons.

6.25 To date no 3G services are commercially available in the benchmarked countries, and these services are not considered further here.

Other broadband technologies

6.26 Examples of other technologies that may provide broadband services include WLAN, powerline and free space optics.

6.27 Local wireless networks (WLANs) are being deployed in public spaces (so called "HotSpot" locations, such as coffee shops or airport lounges). These use Wireless Local Area Network (WLAN) technologies, such as Wi-Fi (IEEE 802.11b), and allow users with a laptop/handheld device, with wireless capability, to log in to the WLAN for fast broadband access to the Internet. T-mobile has developed access points in 1,200 Starbuck's cafes across the US, and is starting to extend this to the UK and Germany. There are currently four companies that are offering commercial public access Wi-Fi in the UK and Ireland: BT Openzone, UK Explorer, Wayport and Megabeam.

6.28 Powerline technology uses the electricity supply network to provide two-way broadband and phone connections by using filters that can separate the power supply flowing along the cable from communications signals. Trials are currently being run in Scotland (Scottish Hydro-Electric). Trials in Germany (by RWE) have recently been wound up although other companies are still developing the technology. Previous trials by NorWeb in the UK did not progress to a commercial product.

6.29 Free space optics ('FSO', or wireless optics) uses a beam of laser light to transmit advanced services. FSO transmits light pulses through the air to receivers that are less than 1km away and within line of sight of a base terminal. These services do not require spectrum licences or installation of wire or cable. Products are available in the US through Washington based Terabeam and California based Airfiber and in the UK through Cable Free.

6.30 The above are included to give examples of other technologies, and are not considered further in this report.

Comparison of availability

6.31 Table 6.1 shows the availability of services in each benchmarked country. Where approximate take-up figures are available, these are also given.

Table 6.1 Comparison of availability and take-up of services (as commercial or trial services)

"N/A" = not available

* this is intended to give examples of other technologies and is not intended to be comprehensive.

Methodological issues

6.32 The current report takes a different approach to benchmarking alternative technologies to that taken for DSL/cable modem, with the main focus being on service availability rather than price/take-up. This reflects:

• the recent availability of the services; and
• the lack of publicly available information.

6.33 To the extent prices are compared, comparisons are simplified and use a similar methodology to that used in chapter 3

6.34 Attempts to include these services in the full price benchmarking would need to address:

• the issue of the extent to which services are direct substitutes (ie whether direct price comparisons are meaningful); and
• a consistent approach to price estimates, taking into account the different pricing models that alternative technologies may employ.

6.35 In considering whether prices for services can be directly compared the following issues are relevant:

• in some cases these alternative services provide a direct substitute for DSL or cable modem services while in others these alternative services will be the only option (ie for consumers living in areas not covered by DSL or cable modem);
• some satellite services provide downstream capacity only, with the upstream path provided over a PSTN/ISDN line; and
• for 3G services, the service may complement as well as substitute for a fixed service, and will provide additional functionality (for example, mobility).

6.36 Comparing prices for these services is in some cases difficult due to the variety of pricing models employed. Some examples include:

• the ability to tailor packages by buying additional "burstable" and/or "guaranteed" speed;
• usage rates which may depend on the time spent on-line or the data volume downloaded, or a maximum amount of data that can be downloaded per month (this is also seen in some DSL/cable modem packages, but is more common with FWA/satellite);
• the ability to buy services with certain amounts of guaranteed speed or prioritised speed, with lower speeds outside the guaranteed amount; and
• services where speed differs by time of day, or where services can only be used off-peak.

6.37 Developing a basis for comparing prices on a like-for-like basis would in principle require more detailed user profiles than the ones used in Chapter 3, with usage described in terms of a number of different variables (eg not only length of time on-line but the speed required for different periods, the time of day the service is used, and the usage of up and downstream links separately).

6.38 In this report indicative comparisons are presented using a simplified approach similar to that used in Chapter 3:

• price information is presented separately for FWA, one-way satellite and two-way satellite (although some broad indications of prices relative to DSL and cable modem are also presented);
• for one-way satellite the additional cost of the return dial-up path is not taken into account, although the effect of doing this is commented on;

• usage is defined as 150 hrs and 0.5Gbyte per month- the figure of 0.5 Gbyte is chosen to ensure the comparisons are as inclusive as possible, given the limited amount of data available (some of the services have a 0.5Gbyte per month limit); and
• a 3 year write off period for one-off costs is used.

6.39 It is not possible to cover all companies offering these services and the services quoted provide examples of what is available.

6.40 In view of the above points, the price comparisons presented should be considered as "indicative" only.

Broadband Fixed Wireless Access (BFWA)

6.41 This section looks at services provided using BFWA in each country considering the main operators offering or planning to offer services and the main features of the services commercially available (price, bandwidth etc). Sources include the relevant country regulators and company web-sites.

6.42 A summary chart showing indicative speeds and prices is then presented.

France

6.43 Licences were awarded mid 2000 in France, by way of a "beauty contest". Two national licences were issued and a number of regional licences.

6.44 However, networks have been rolled out much more slowly than anticipated and many of the initial operators have either gone out of business or been taken over. The ART has recalled several of the regional licences and one of the national networks due to licence build obligations not being met.

6.45 Information published by ART shows the situation at the end of 2001 was as follows:

• 175 base stations deployed;
• 17 regions, representing 18% of the population, had access to services from one or more BFWA operator;
• BFWA services were offered in around 30 regions of more than 50,000 inhabitants; and
• there were approximately 1,000 business customers using BFWA services.

6.46 The companies offering services are listed in table 6.2. As can be seen from this table, only 2 companies are now offering services.

Table 6.2: BFWA operators in France

6.47 Firstmark published some pricing information on its web-site (obtained early September 2002). The service, aimed at business use, offers:

• symmetric 1Mbit/s service with a guaranteed rate of 64 kbit/s;
• monthly cost 270 Euro per month for a basic Internet service; and
• initial charges of 540 Euro.

6.48 As at November 2002, this information was no longer available on Firstmark's web-site and the company appeared to be moving away from offering retail services, instead offering what appeared to be a wholesale service to a number of service providers. However, existing customers of Firstmark were assured that their service would not change.

6.49 The price is generally higher than for DSL or cable modem offers available in France, but provides symmetric service and a guaranteed rate.

6.50 Further price information was published by the ART, April 2002. These prices are quoted in French Francs and given the subsequent changes to licences/company ownership it is not clear that these remain valid. General features are:

• services offered for a range of bandwidths (from 128kbit/s to 2Mbit/s);
• a mixture of symmetric and asymmetric services, generally with guaranteed rates;
• prices starting at around 300 Euro per month;
• services aimed at a range of end user types ("all", small and large business).

Germany

6.51 A large number of regional licences were awarded in 1999. However, only a few operators are still operating. These include Star 21, Broadnet, Arctel and HighwayOne. No details of coverage or subscriber numbers are available, however, the share of the broadband market accounted for is thought to be insignificant. Star 21 publish prices on their web-site. Services are aimed at business use and are offered with:

• downstream bandwidths ranging from 384 kbit/s to 6Mbit/s; and
• prices starting from 299 Euro per month for a flat rate service plus 400 Euro one-off installation charge.

6.52 This is more expensive than some DSL services in Germany.

Sweden

6.53 Four national licences were awarded in December 2001 (although one of these has been returned), with additional regional licences and one national licence expected to be awarded around the end of 2002. No commercial services are available as yet. The licence holders have all promised national coverage by 2005. Telia is currently rolling out its network with services expected in 2002.

UK

6.54 Licences have been awarded by beauty contest at various stages since 1994 (2-10GHz). More recently (November 2000), spectrum at 28GHz was auctioned.

6.55 Two companies are currently offering commercial services: Liberty Broadband (formerlyTele2) and Your Communications.

6.56 Liberty Broadband offer commercial BFWA data-only services for users in a number of urban areas. Coverage extends over approximately 12% of the UK population. Liberty Broadband aims to cover all 40 major urban areas in the UK, 65% of the UK population, by 2003.

6.57 In June 2002, Liberty Broadband announced a change in strategy moving away from consumer broadband services and re-focusing on the business broadband market (while they no longer actively seek residential customers, they continue to support existing consumers). Liberty Broadband is reportedly prepared to rollout its broadband services if at least 100 customers from within a 10km radius area come forward. There are approximately 3000 subscribers.

6.58 Services offered range from 512 kbit/s downstream (with 256 kbit/s upstream) to a symmetric 1Mbit/s service, though customers can choose from a range of options to increase speeds and/or ensure a given service level. The monthly charge for the most basic single user service (residential only) is £39.99 with £150 one off charge. This makes the service somewhat more expensive than the cheapest available DSL/cable modem.

6.59 Your Communications offer symmetric services aimed at the business market. Details of prices are not available from their web-site.

6.60 A number of other operators have licences that allow BFWA services to be offered. While there are no other commercial services, other licensees are at various stages of deploying their networks. Further spectrum (unsold at the Nov 2000 auction) is still available.

US

6.61 Licences have been awarded to a number of companies, however, many of these have filed for Chapter 11 bankruptcy and there has been a lot of consolidation. The FCC reports that, as at mid 2001, nine companies reported subscribers in a total of 25 states. Estimates for subscriber numbers were given as between 50,000 and 150,000, though it was noted that some industry analyst estimates were as high as 300,000 for early 2002. The FCC noted that nearly 90% of these were "advanced" services (ie greater than 200kbit/s in both directions) and 85% serve residential or small business. In addition, many local and regional ISPs use unlicensed spectrum to offer terrestrial fixed wireless high-speed Internet access. Estimates of the number of companies offering services in this way vary widely from 50 to 800. The FCC estimate that at least 241 companies offer service in approximately 503 different counties. The FCC also reports that capital expenditures within the fixed wireless sector have declined during 2001.

6.62 Some of the most important players/potential players are as follows:

• Teligent Inc - went into chapter 11 but in September 2002 completed its reorganisation and emerged "fully funded and debt free" ;
• Winstar Communications - went into chapter 11 but has since restructured;
• Advanced Radio Telecommunications - went into chapter 11 but in January 2002 successfully reorganised and emerged from chapter 11 protection;
• XO - went into chapter 11 but has had its reorganisation plan approved by the Court;
• AT&T - has decided to exit the FWA business;
• Sprint - has halted deployment; and
• Verizon - is conducting tests.

6.63 Price data has not been found for any of the above. However, price data has been found for three regional operators:

• Nucentrix, who offer service in Texas, Oklahoma and the Midwest;
• ComSpeed who offer service in rural Arizona; and
• VIAccess who offer service in the Virgin Islands

6.64 Prices from these companies start from $40 for a 512kbit/s service, with a $199 one off fee. This is comparable to some DSL/cable modem services. Speeds range from 256 to 1,500 kbit/s. It is unclear how typical these prices are.

Price and speed comparison

6.65 A price and speed comparison for the services mentioned above is given in figure 6.1. The lowest price service from each operator is compared. Where different services are clearly targeted at the business and residential market, the lowest price residential and lowest price business service is shown. Business and residential services are presented together as the volume of data does not warrant separating these out. As the majority of services appear to be targeted at businesses, prices are presented excluding VAT.

Figure 6.1: BFWA services in ascending order of price, with "speed" of service (downstream bandwidth) shown separately (excluding VAT)

Prices as at Nov 2002 (for Firstmark it is unclear if these services are still available for new customers)

6.66 From the small sample of prices found it is difficult to draw conclusions. Generally it is seen that:

• the price for residential service in the UK and US is similar; and
• there is a wide range of prices for business services with US and UK prices at the lower end for business only services.

6.67 Prices for BFWA can be compared with the cheapest prices for DSL and cable modems in the benchmarked countries. Generally it is seen that BFWA services are more expensive, with prices on average around 2.5 times the price of the lowest DSL or cable modem offers. This comparison needs to be treated with care as the services may not be like-for-like - in at least some cases the BFWA services provide "better" service in terms, for example, of higher speeds, symmetric service and/or better contention ratios.

Broadband Satellite Access

6.68 This section looks at services provided using broadband satellite access in each country considering: the main service providers offering or planning to offer services and the main features of the services commercially available (price, bandwidth etc). Sources include the relevant country regulators and company web-sites. The main focus is on the providers of retail services to the end user.

6.69 As in the previous section on BFWA, a country by country overview is given. However, as some satellite services are offered across Europe (at either the wholesale or retail level), an overview of European services is also given.

6.70 Following the country specific overviews, summary charts showing indicative speeds and prices are presented.

Europe

6.71 Wholesale broadband satellite access is offered in Europe by the companies listed in table 6.3. Examples of ISP's using these wholesale services are also listed.

Table 6.3: European satellite wholesalers/retailers.

6.72 As illustrated in table 6.2, in some cases ISP's offer service in one country only and in others ISPs offer services across a number of European countries. The distinction is not clear cut as an ISP may target consumers in a particular country, but be prepared to offer service to consumers in other countries. The intention in this report is to reflect the country/countries where services appear to be marketed.

6.73 Examples of ISPs found to be offering services in more than one of the benchmarked countries (as at November 2002) are as follows:

• Aramiska offer services in the UK and France, with services in Germany and Sweden expected soon;
• Tiscalisat offer commercial services in Germany and Sweden, trial services in UK, and are expecting to offer service in France soon;
• Europe on-line offer service in France, Germany and the UK; and
• Broadsat Opensky and Netsystem offer services in France and the UK;

6.74 The approach to pricing (as at November 2002) varies:

• Aramiska appear to be planning to offer a range of identical two-way services with a single price in Euros for all continental European countries (including for Sweden), while prices in the UK are quoted in £ and appear to be more expensive, (at the beginning of December, Aramiska changed its pricing structure and now offers flat rate tariffs across all European countries). Downstream speeds vary from 256 to 2000kbit/s and prices start from 249 Euro per month with additional costs for usage above 1 Gbyte per month;
• Tiscalisat offer the same (two-way) service in Germany and in Sweden, although there appear to be greater payment options in Germany (allowing a trade off between one-off and monthly charges). Prices are quoted in the country's own currency and for the comparable service there appears to be some difference in price. The monthly price in Germany is 92 Euro/month for a downstream speed of 400kbit/s;
• Europe on-line offer identical one-way services and quote a single price in Euro starting at 9.99 Euro per month plus 0.044 Euro per minute for a downstream speed of 1000 kbit/s. Options are available for bundled minutes;
• Broadsat Opensky offer identical one-way services with a single price in Euros starting at 24 Euro a month providing up to 300Mbyte/month guaranteed traffic with 150Mbyte/month at 400kbit/s average transfer rate; and
• Netsystem offer identical one-way services and quote a single price in Euro with prices starting from 36 Euro per month for 300kbit/s downstream.

6.75 Examples of country specific retail service providers are given in the following sections.

France

6.76 A number of service providers are offering one way services (see above). Prices at the lower end are below DSL or cable modem although the requirement for a fixed return path means the prices are not directly comparable. Satpro was previously offering a one-way service, but has recently started to offer two-way services with prices starting from 139 Euro per month for 512 kbit/s downstream.

Germany

6.77 Deutsche Telekom are offering a one way service ("T-DSL by Satellite") with downstream speed of 756kbit/s and monthly prices starting from 19.90 Euro/month with additional charges above 0.5Gbyte per month usage. An ISP charge is applicable on top of this (T-online are not offering a flat rate package for use with this). This appears more expensive than DSL or cable modem services.

6.78 Sky DSL are offering a range of services with downstream speeds of up to 8000kbit/s. The pricing structure is complicated with prices depending on the volume of traffic downloaded, the time of day the service is used and the "priority" chosen by the user (with higher priority giving a better chance of achieving a high speed). Services start from 15.90 Euro per month. The downstream speed (4000kbit/s) appears very high for this price, however, there are no guarantees that this speed will be achieved in practice.

Sweden

6.79 A one-way service is offered by Swepet with downstream speed from 512 to 2000 kbit/s and prices starting at 395Kr (£27) per month. This is more expensive than the cheapest DSL or cable modem services.

UK

6.80 There are a number of ISPs offering two-way service (in addition to those mentioned above) including: Bridge Broadband, Beam Solutions, BT Openworld, Crystal Data, I-sat, Isonetric and Space IP. Downstream speeds vary from 400 to 2000 kbit/s and prices start from £60 a month. Prices are above the lowest DSL and cable modem prices.

6.81 There are a number of ISPs offering one-way service including SatDrive and IpviaSat. Downstream capacities vary between 200 and 4000 kbit/s and prices start from £14.99 plus £97 per Gbyte downloaded, or £20 including 1 Gbyte per month. A "bundled" one-way satellite plus unmetered dial-up service is due to be launched in November by Silvermead.

6.82 In April 2002, BT Wholesale announced it would start trials of a new one-way satellite Internet service. The trial was launched in July 2002, but at the start of November 2002 BT withdrew the trial due to lack of interest and the inability to find resellers capable of offering the product.

6.83 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. Based on this information, Oftel estimates that there are over 2,500 broadband satellite end-users in the UK (residential and business).

US

6.84 The FCC report (Feb 2002) that provision of broadband over satellite technology is still in the early stages of deployment. Broadband satellite (FCC definition of broadband is greater than 200kbit/s in one direction) accounted for between 50,000 and 150,000 of total broadband lines as of June 2001. Virtually all of these lines are provided to residential and small business users and none of these lines are "advanced" services (ie provide speeds of greater than 200kbit/s in both directions). There are broadband satellite subscribers in every state. Starband Communications (which has strategic partnerships with Gilat Satellite Networks, Microsoft Corporation and EchoStar Communications) began operation in 2000. It announced at the end of 2001 that it had installed nearly 40,000 paying subscribers in all 50 states. Hughes Network Systems said it had over 100,000 subscribers for its Direcway satellite service.

6.85 Both Starband and Direcway (offered through DirecTV) offer two-way service with downstream speeds of 500 and 1000 kbit/s offered by Starband (no speeds mentioned by Direcway) and prices starting from $60 a month, somewhat above the price for DSL or cable modem services.

Price and speed comparison

6.86 A price and speed comparison for the services mentioned above is given in figures 6.2 and 6.3. One- and two-way services are shown separately as these are not directly comparable.

6.87 For one-way services the lowest price offer from each service provider is included. The lower price offers often appear to be aimed at residential use. In some cases higher price offers (with greater speed, greater priority etc) are also available and seem to be aimed at business use. Prices are presented including VAT (where prices are not explicit about the treatment of VAT, it is assumed that VAT is included).

6.88 Generally, for two-way services the lowest price offer from each service provider is included. This often appears to be aimed at business use. However, in the US the lowest price offers are residential only offers and hence the lowest priced business offers are also included for comparison. Prices are presented excluding VAT (where prices are not explicit about the treatment of VAT, it is assumed that VAT is excluded).

Figure 6.2: One-way satellite broadband access services in ascending order of price, with "speed" of service (downstream bandwidth) shown separately

Prices as at Nov 2002

6.89 Figure 6.2 illustrates the wide range of prices and speeds for which one-way satellite services are available in Europe. In many cases there are limits to the services in terms of guaranteed traffic or speeds, or restrictions as to when the service can be used. The chart aims to show the minimum monthly spend, but may well not be comparing like for like. On average, the price excluding the dial-up return path, is around 90 per cent of the cost of DSL or cable modem. The cost of dial-up access for the return path will vary according to how the user chooses to use their satellite link. It may be possible for users wishing to download large amounts of data at relatively infrequent intervals to spend relatively little time on-line with their dial up connection. However, to reproduce a service comparable to DSL or cable modem and avoid the need to dial-up/log out frequently, always on dial-up access may be needed. Adding in the cost of unmetered dial-up access (modelled as 150 hours use per month), suggests a total cost which on average is over 2.5 times higher than for DSL or cable modem services (the ratio will be sensitive to the number of hours of dial-up in countries where there is no unmetered dial-up access).

Figure 6.3: Two-way satellite broadband access services in ascending order of price, with "speed" of service (downstream bandwidth) shown separately

6.90 Figure 6.3 illustrates the wide range of prices for two-way satellite services in the benchmarked countries. Speeds for these services (which are the lowest price service by service provider) are relatively consistent, with most being offered at close to 500kbit/s downstream. The two US residential offers appear as the cheapest, but the business services offered by these service providers are more in line with European prices (though are still among the cheaper services). The price for a service is generally more expensive than for DSL or cable modem services. On average across the countries, two-way satellite is approximately 3.5 times as expensive as the cheapest DSL or cable modem services. Two-way satellite is clearly more expensive than one-way satellite. Generally the pricing model is simpler than that for one-way satellite, with less variety in pricing according to precise package details.

Conclusions

6.91 The market for alternative broadband technologies is still very new. While BFWA and/or satellite services are offered in all of the benchmarked countries, subscriber numbers are still low. Prices for BFWA and two-way satellite services are generally above prices for DSL and cable modem services, although it is unclear how much of this price difference can be attributed to differences in the service parameters (such as speed, contention ratio, web hosting, security etc). One-way satellite combined with unlimited dial-up access for the return path is likely to be more expensive than DSL or cable modem services, though a user who is able to severely restrict the time spent dialled-up might be able to keep their costs close to, or even below, the cost of DSL or cable modem services. Some one-way satellite services have what appear to be particularly low prices, but these often have limits on guaranteed rates and traffic so it is unclear what level of service is experienced in practice.

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