Business Connectivity Market Review

29 June 2010


1.1 In this document we propose measures to address concerns we have identified about the extent of competition in the provision of leased lines in the UK.

1.2 Leased lines provide dedicated symmetric transmission capacity between fixed locations, and their overall value exceeds 2bn per annum in the UK. They play an important role in business communications services and are used to support a wide variety of applications, both in the private and public sectors. They also play a significant role in delivering fixed and mobile broadband services to consumers, because communications providers (CPs) use them extensively in their networks.

1.3 Our proposals are designed to promote competition in the provision of leased lines and the services which use them, and will affect the availability, choice, price, quality and value for money of data-transfer services throughout the UK. They are therefore important in furthering the interests of citizens and consumers.

Key trends in the market

1.4 The demand for leased lines bandwidth has increased steadily in the last few years, driven by sustained increases in both the penetration and the speed of business and consumer data services. Adoption of remotely hosted computing applications (often known as 'cloud computing'), growing consumption of video content and the rapid growth of e-commerce and of internet applications have all added to businesses bandwidth demands. At the same time, providers of consumer broadband services, both fixed and mobile, have required steadily increasing bandwidth to support the growth in traffic from their end-users.

1.5 Looking forward, the growth in demand for leased lines capacity seems set to continue as businesses demand more bandwidth, and as providers of mass market broadband services invest in fixed super-fast services and mobile next-generation (4G) services.

1.6 Modern technologies are driving down the unit costs of leased lines bandwidth. The number of services which use legacy time-division multiplex (TDM) technologies has been declining, although they still account for most installed leased lines. Modern Ethernet transmission equipment is now preferred in most new installations because it costs less and supports higher bandwidths.

1.7 The trend to lower unit costs is particularly evident in the increasing adoption of wavelength-division multiplex (WDM) technology. This technology can multiply by several times the bandwidth transmissible in an optical fibre. WDM equipment allows CPs to aggregate traffic from different services and to use optical fibres efficiently in the core of their networks as demand for bandwidth continues to increase. CPs are also deploying WDM equipment increasingly at their customers' premises if very high bandwidths are required.

The market review process

1.8 We review competition in some communications markets periodically, in accordance with the EU regulatory framework which is implemented in the UK by the Communications Act 2003 (the Act). Our review process has three formal stages. First, we define each relevant market in terms of its products and geographic scope. Then we assess whether any CP has a position of significant market power (SMP) in any of the relevant markets, which, in essence, means that it would be able to operate in the market without effective constraint from competition. Finally, we assess which regulatory remedies we should impose to address competition concerns that arise from any SMP we find.

1.9 We last reviewed these markets in 2007/8 (the "2007/8 Review"), and set out our findings in statements published in December 2008 and February 2009. (-1-) (-2-)