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Foreword

This is the second report evaluating the impact of our Telecoms Strategic Review. The goal of the Telecoms Strategic Review was to promote the development of a communications market that produces lower prices and a choice of high quality and innovative services for both business and residential consumers. Delivering these benefits for consumers involves promoting sustainable competition, ensuring incentives for timely and efficient investment, and removing regulation which is no longer necessary.

The Telecoms Strategic Review led to a fundamental change in regulation in the form of the Undertakings made by BT Group plc under the Enterprise Act 2002 in September 2005. These Undertakings were made in lieu of a reference to the Competition Commission. They were designed to address long-standing barriers to investment and competition through the functional separation of BT. This involved the creation of a new organisation, Openreach, which is separate from the rest of the BT Group and provides most of the wholesale products that are delivered by BT on an equivalence of inputs basis. The Equality of Access Board was set up to oversee these new arrangements and ensure that the Undertakings were implemented effectively.

At the core of the Undertakings is the need for all communications providers to have equality of access. This means that Openreach should offer them the same wholesale products as it offers to BT’s own retail businesses, using the same processes. Providers should then be able to compete fairly with BT at the retail level in supplying services to consumers. They should also have more scope to innovate and to differentiate their services from those of their competitors.

Just over a year ago we published our first evaluation of the Telecoms Strategic Review. We concluded that the implementation of the Undertakings was progressing satisfactorily, but that it was too early to assess the impact on the market and consumers. It is now two years since BT began to implement the Undertakings, so we have more evidence to draw on.

This evaluation report looks at the impact on residential and business consumers. It examines industry developments, such as the take-up of wholesale products and the level of investment that is occurring. It then assesses BT’s progress in implementing the Undertakings and highlights the issues that still need to be addressed.

One of these issues is the need for Openreach to have financial incentives to improve the quality of service that it provides to its wholesale customers. At the same time as publishing this report, therefore, we are publishing a consultation on Openreach’s existing service level agreements and the levels of compensation that it must pay in the event that the required levels of service are not satisfied.

Another way of ensuring that the Telecoms Strategic Review has the intended impact is through the Office of the Telecoms Adjudicator. This is independent of Ofcom and works with Openreach and industry to find solutions to the operational problems with the delivery of Openreach’s wholesale products. The Office’s latest report is being published at the same time as this evaluation report. It examines the extent to which the performance of the products supplied by Openreach to industry has improved. It also considers the extent to which Openreach has developed its products so that they have the features that industry requires.

BT’s implementation of the Undertakings is taking place at the same time as the functional separation model is being considered or adopted in a number of other countries, both in the EU and further a field. The European Commission is intending to include a functional separation remedy in the revised EU framework for electronic communications. There is also considerable debate about how regulation should evolve to ensure that consumers benefit from competition in a world of next generation communications networks. We hope, therefore, that this report will be of interest in both the UK and abroad.

David Currie, Chairman

Ed Richards, Chief Executive

 

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