Contents

Summary
Chapter 1 Introduction
Chapter 2 Internet access - basic
Chapter 3 Internet access – broadband/ always-on
Chapter 4 Broadband take-up and availability
Chapter 5 Wholesale inputs in the broadband market
Chapter 6 Alternative broadband access technologies

Annexes are available as a pdf document to download only - please click here

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: Glossary

    Summary

Scope

S.1 This report is an international benchmarking study of Internet access covering both basic dial-up access and broadband services (Digital Subscriber Line (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 2002 on dial-up and broadband Internet access, based on August 2002 prices. Oftel has carried out the analysis and drafting of this report. The tariff data used in this report have been collected by consultants HI Europe.

S.3 For broadband Internet access, the report considers not only comparisons of retail prices but also comparisons of:

• take-up and availability;
• availability and price of wholesale DSL products; and
• price and availability of services provided using "alternative" broadband technologies such as Broadband Fixed Wireless Access and satellite.

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 13th February 2003.

Results for "basic" Internet Access

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 service providers selected:

• for residential consumers, UK prices are cheaper than all countries for peak unmetered and metered services. For off-peak services UK prices are below average; 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 (California). UK prices for limited usage are cheaper than Sweden and the US, but more expensive than France and Germany.

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 cable modem and DSL 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.

Table 1: Comparison of residential off peak Internet access prices

Table 2: Comparison of residential peak Internet access prices

Table 3: Comparison of business Internet access prices

S.9 Compared to the results in the December 2002 report:

• for residential services, the UK’s ranking against other countries has remained the same for peak services and off-peak limited services but other countries have improved their position for off-peak unmetered services; and
• for business services, the UK’s relative position is similar to the last report and the rankings remain the same.

Results for broadband Internet access

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. The results are based on the average of the two cheapest deals available from the service providers covered in this research (it is not possible to include all service providers 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 Since the December 2002 report, Oftel has published a market review of broadband in which broadband is considered to be an always-on service in excess of 256kbit/s. For consistency, the minimum speed of the residential broadband and the low speed business basket has been changed from 129kbit/s to 257kbit/s. An additional "entry level" always-on residential basket has also been included to take into account the lower speed always-on services available in most benchmarked countries: the minimum speed of the additional basket is 128kbit/s.

Residential broadband services

S.12 Tables 4 and 5 show 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 2003. These results show that as at February 2003:

• for the residential broadband basket (ie where the consumer has a minimum bandwidth requirement of 257kbit/s), UK prices are cheaper then other countries, apart from Sweden, both for DSL only and when cable modems are included; and
• for the "entry level" residential basket (ie where the consumer has a minimum bandwidth requirement of 128kbit/s):
• when cable modems are included the UK is cheaper than all other countries; and
• when cable modems are excluded prices in the UK are similar to France and Sweden and significantly cheaper than Germany and the US (19-31%).

Table 4: Results for price level, price index and (downstream) bandwidth for residential broadband services

Table 5: Results for price level, price index and (downstream) bandwidth for "entry level" residential always-on services

S.13 The new basket parameters are not directly comparable with previous benchmarks, hence the August 2002 results were run using the new minimum speeds. This shows that from the period August 2002 to February 2003 the UK’s relative position improves for both residential baskets.

Business broadband services

S.14 Table 6 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 2003.

S.15 From Table 6 it is seen that as at February 2003:

• for the most basic services available to business (ie where the business has a minimum bandwidth requirement of 257kbit/s):

• prices in the UK are similar to Sweden, cheaper than the US and France and more expensive than Germany; and
• the service speed is lowest in the UK and highest in France.
• for business services where a minimum geometric mean (ie square root downstream bandwidth x upstream bandwidth) bandwidth of 500kbit/s is required:

• UK prices are more expensive than elsewhere; and
• the speed in all countries is similar.
• for business services where a minimum geometric mean bandwidth of 1000kbit/s is required:

• services are only available in Germany, Sweden and the US; and
• prices in Germany are much more expensive than Sweden or the US.

Table 6: Results for price level, price index and bandwidth for business broadband services (cable modem services included)

Note: DS = downstream, GM = geometric mean (this is defined as: square root (downstream bandwidth x upstream bandwidth))

S.16 For the basic business basket the new parameters are not directly comparable with previous benchmarks, hence the August 2002 results were run using the new minimum speed of 257kbit/s. This showed that for the period August 2002 to February 2003, prices decreased significantly in France, Germany and Sweden and prices in the UK remained relatively stable. This had a negative impact on the UK’s relative position.

S.17 When there is a minimum bandwidth of 500kbit/s the UK’s relative position also deteriorates and this is again due to relatively stable prices in the UK and large price decreases in France, Germany and Sweden.

Take-up of broadband services

S.18 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, end 2001 and end of December 2002.

S.19 While current levels of broadband take-up are low (below 9% of the population) in all of the countries benchmarked, take-up in the US and Sweden is markedly higher than in the other European countries. 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. Although the UK is behind in subscriber figures, the growth rate is faster than any other country included in the benchmark.

Figure 1: Broadband take-up per 100 population by country for end 1999, end 2000, end 2001 and end of December 2002.

Source: OECD, companies

Wholesale DSL products and local loop unbundling

S.20 The wholesale DSL price comparisons for the UK and France have been updated with new prices from BT since May 2003. These new prices are currently subject to an Oftel investigation following a complaint that they result in a margin squeeze. On the basis of the new prices:

• 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 also above BT's; and
• 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.

S.21 Local Loop Unbundling (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 Sweden and the UK, but is growing. In Germany and the US take-up is higher, accounting for around 6 per 100 incumbent DSL lines. The biggest change in the last 6 months has been in France where take-up of LLU (mostly shared access) has increased around 17 fold, although this still leaves France take-up of LLU below that in Germany and the US.

Alternative Broadband Technologies

S.22 The report has considered the availability, price and take-up of alternative broadband technologies such as Broadband Fixed Wireless Access (BFWA) and broadband satellite access. The market for alternative broadband technologies is still very new. While BFWA and satellite services are offered in all of the benchmarked countries, subscriber numbers are still low. Prices for 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.

Chapter 1

Introduction

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 telecom 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 telecom services:
• consumers have a choice of competing service providers all of whom will offer different packages; and
• each service provider may offer a variety of different packages and discount schemes targeted at different segments of the market.

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, International benchmarking study of Internet access (dial-up and broadband), published by Oftel in December 2002, which was based on tariff data valid as at August 2002. A list of the "tariffs valid at" date and date of publication of previous studies is given in Table 1.1;

Table 1.1: List of previous studies

Reports can be found at: www.Oftel.gov.uk/publications/research/index.htm

* Some data for April 2002 was also included here.

1.6 Oftel has carried out the analysis and drafting of this report.

1.7 Data has been collected from the vast range of tariff packages available to residential and small/medium sized businesses, for major service providers and service providers in each country as at February 2003. The tariff data used in this report have been collected by consultants HI Europe.

Points to bear in mind

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 13^th February 2003. 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 service providers 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 access more specific usage information in order to determine the best option for that person or business.

1.11 There are separate industry funded initiatives and reports which seek to help UK consumers be better informed purchasers of telecommunications services (examples are: fixed and mobile quality of service indicators –http://www.cpi.org.uk and www.oftel.gov.uk; and information for small businesses about using telecoms and the internet –http://www.telecomsadvice.org.uk). Oftel has also recently produced a range of consumer guides and has introduced a seal of approval, called the Oftel PASS, for websites that compare the prices of different suppliers and provide impartial and accurate information - http://www.oftel.co.uk/publications/consumer/2002/pass0902.htm. This report is not part of that body of work as it seeks to compare positions between, not within, countries and it is not, therefore, intended in any way to be a buyer’s guide to services in the UK.

Outline of the report

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

• Internet access – basic (Chapter 2);
• Internet access – broadband / always-on (Chapter 3);
• Internet availability and take-up (Chapter 4);
• wholesale inputs to the broadband market (Chapter 5); and
• alternative broadband access technologies(Chapter 6).

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.

  Chapter 2

Internet access – basic

Introduction

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 narrowband Internet access which concluded that the retail market for dial-up access was effectively competitive. Past benchmarking studies formed part of the data input to this review. This study forms part of the ongoing monitoring of the retail market for dial-up Internet access.

2.3 The results provide an update of the results presented in the December 2002 report (based on prices as at August 2002). This study is the seventh 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 The selection of service providers for inclusion in this report has been reviewed and some changes have been made to ensure that the tariffs included are representative. These changes may impact on the apparent price trends reported.

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

• a summary of developments over the last 6 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 6 months;
• charts of the spread of offers by country;
• sensitivity analysis;
• detailed results; and
• conclusions.

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

Market developments

2.7 Results from Oftel’s latest consumer research (conducted in February 2003) show 45% of homes are connected to the Internet, compared to 42% in August 2002. Table 2.1 shows that:

• the percentage of unmetered subscriptions has remained stable over this period; and
• the average hours per month is increasing.

Table 2.1: Residential Internet market developments from August 2002 to February 2003

2.8 The results also show that around 65% of small and medium sized businesses (SMEs) are connected to the Internet, this has remained stable over the year. Table 2.2 shows that:

• most SMEs use dial-up (PSTN or ISDN) to connect to the Internet;
• unmetered access is the favoured type of dial-up package; and
• the number of broadband packages is increasing.

Table 2.2: Business Internet market developments from August 2002 to February 2003

Methodology

2.9 The methodology remains the same as the December 2001 report and details are not repeated here.

Results for residential baskets

Price index for residential off-peak services

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

Table 2.3: Comparison of Residential off peak package prices