Oftel's Internet and Broadband Brief

01 December 2004

Contents

1. Key headline statistics

2. Oftel's aims

3. Definitions

4. Monitoring the narrowband and broadband Internet markets

5. Key developments since the previous brief

6. Oftel's narrowband Internet access policy

7. Overview of the UK narrowband market

8. Availability

9. Take-up

10. Prices (October 2003 international benchmarking survey,prices as at August 2003)

11. Current narrowband products

12. Alternative means of narrowband Internet access

13. What is Oftel doing to promote competition in the narrowbandmarket?

14. Oftel's broadband strategy

15. Overview of the UK broadband market

16. Availability

17. Take-up

18. Prices (October 2003 international benchmarking survey,prices as at August 2003)

19. Current broadband products (retail and wholesale) andwhat Oftel is doing in these areas to promote competition

20. Review of the broadband market

Notes

Key headline statistics

Internet access (as at August 2003)

% UK homes with Internet access

50%

% UK SMEs1 with Internetaccess

65%

% UK homes connected to the Internet using a narrowbandunmetered service

34% 2

% UK SMEs connected to the Internet using a narrowbandunmetered service

30% 2

Broadband access (as at end November2003)

Total broadband subscribers

3 million

DSL:

End-users of ADSL services

1,674,000

Availability of ADSL

80% of UK homes and businesses 4

Number of ISPs offering ADSL services

100 +

Cable modems:

End-users of cable modem services

(Oftel estimate) 1,331,000

Availability of cable modems

45% of UK homes and businesses

2.Oftel's aims

Oftel supports the Government’s targets;

  • to ensure that everyonewho wants it has access to the Internet by 2005; and
  • to have themost extensive and competitive broadband market in the G7 by2005.

Oftel wants to see the best deal for all consumersin terms of quality, choice and value for money. This includeschoice of accessspeed (high and low-speed access) and services offered. Oftel believesthat competition is the most effective way of achieving these goals.Competition is working:

  • In narrowband, UK consumers now have a widevariety of tariffs for dial-up Internet access. This includesboth pay-as-you-gotariffs and unmetered packages. UK Internet access prices forresidential consumers continue to be among the lowest in theworld.
  • In broadband, there is competition at the infrastructurelevel between cable modem providers and DSL, and numerous serviceproviders competing with BT to provide retail DSL services toconsumers. Take-up of broadband continues to increase substantiallyand pricescompare well with elsewhere. Oftel is playing an active rolein setting the regulatory framework for the broadband market,andis working closely with industry to pre-empt and resolve disputes.

On 29 December 2003 the duties of Oftel and all responsibilityfor regulating telecommunications will transfer to Ofcom, the newconverged regulator for the communications sector.

3.Definitions

This brief summarises the key developments in the market for Internetand broadband services in the UK, and describes Oftel’s involvementin these markets.

  • ‘Dial-up’ or ‘narrowband’ Internetaccess is used in this brief for access speeds up to and including128 kilobits per second (kbps).
  • 'Broadband' is used in this briefto refer to higher bandwidth, always-on services, offering datarates of 128 kbps and above.

This definition of broadband is used by Oftel for the purposes ofmeasuring take-up in order to capture the dynamic range of servicesavailable to residential and business consumers that are classedby the industry as broadband. This definition gives Oftel data thatis comparable with broadband take-up figures published by other countriesin Europe.

4.Monitoring the narrowband and broadband Internetmarkets

Oftel has continued to monitor the UK narrowband and broadband markets. Oftel’sInternational benchmarking study takes place every 6 months. The latest setof results published in October 2003 (based on services available in August2003) includes the UK, France, Germany, Sweden, and the US states of Ohio andCalifornia. The latest report, which explains Oftel’s methodology in detail,is available at http://www.ofcom.org.uk/static/archive/oftel/press/releases/2003/pr32_03.htm

Oftel’s quarterly market research surveys ask residential andSME Internet users about their use and experience of the Internet,as well as measuring consumer awareness and use of broadband technologies.The latest reports (based on surveys undertaken in August 2003)were published in October 2003. This and previous surveys can befound at
http://www.ofcom.org.uk/static/archive/oftel/consumer/research/research_index.htm

5.Key developments since the previous brief

  • On 17 November 2003, BT announced it was extending its demandregistration scheme for ADSL broadband by setting triggers fora further 2,300 exchanges, serving two million homes and businesses.
  • On 11 November 2003, Oftel, the DTI and industry representatives gave evidence to the Trade and Industry Committee on the development of broadband in the UK. A transcript of the oral evidence can be found at Transcript 1 and Transcript 2
  • On 4 November 2003, Oftel published informal guidance for companies using Voice over Internet Protocol (VoIP) to deliver communications services to customers.
  • On 28 and 29 October 2003, over 300 people attended the BSG Broadband Britain Conference in London.
  • On 27 October, Oftel published its latest quarterly research into residential consumers' use of Internet services and the results of its International benchmarking study of narrowband and broadband services.
    http://www.ofcom.org.uk/static/archive/oftel/publications/research/2003/q14intres1003.pdf
    http://www.ofcom.org.uk/static/archive/oftel/publications/research/2003/benc_doc1003.pdf

Narrowband

6.Oftel's narrowband Internet access policy

Oftel’s approach is to promote competition in the provisionof access to Internet services, thereby giving consumers greaterchoice, better value and higher quality, and spurring take up. Oftelseeks to ensure that the level of regulation is proportionate giventhe level of competition in the market, while protecting and informingconsumers where the market does not do so.

7.Overview of the UK narrowband market

The UK has a competitive retail dial-up (also known as ‘narrowband’)ISP market with both pay-as-you-go and unmetered packages availableto consumers. Unlike much of the rest of Europe (including Germanyand France), an offshoot of the incumbent telecoms operator doesnot dominate the UK dial-up retail market.

8.Availability

Dial-up Internet access is available to all UK households and businesseswith a fixed telephone line. The vast majority of UK Internet serviceproviders (ISPs) are available to consumers nationwide.

9.Take-up

Exhibit 1 Use of narrowband and broadband Internet packages (residential)August 2003

 

Aug 02

Nov 02

Feb 03

May 03

Aug 03

UK homes connected to the Internet, of which:

42%

42%

45%

47%

50%

- connected using narrowband

87%

83%

79%

77%

76%

-connected using a narrowband unmetered service

38%

35%

38%

32%

34%

-connected using a narrowband metered service

29%

28%

25%

28%

28%

-connected using a narrowband service (but are unsure whethermetered or unmetered)

18%

16%

16%

16%

17%

August 2003 figures are based on Oftel market research and a totalsample size of 2099 UK homes.

Source: Consumers' use of Internet, Oftel residential survey – August2003 –

http://www.ofcom.org.uk/static/archive/oftel/publications/research/2003/q14intres1003.pdf

Exhibit 2 Use of narrowband and broadband Internet packages (business) August2003

 

Aug 02

Nov 02

Feb 03

*May 03

Aug 03

SMEs connected to the Internet, of which:

67%

67%

65%

65%

65%

- connected to the Internet using narrowband

86%

83%

79%

73%

66%

- connected to the Internet using ISDN

32%

26%

23%

22%

22%

- connected to the Internet using narrowband unmetered

37%

35%

35%

33%

30%

- connected to the Internet using narrowband metered

29%

28%

30%

32%

27%

- connected to the Internet using narrowband (unsure whethermetered or unmetered)

19%

20%

15%

3%

5%

August 2003 figures are based on Oftel market researchand a total sample size of 802 UK SMEs.

Source: Oftel small and medium business survey - August2003 –
http://www.ofcom.org.uk/static/archive/oftel/publications/research/2003/q14intbus1003.pdf

^top of page

10. Prices (October 2003 international benchmarking survey, pricesas at August 2003)

The results in exhibit 3 and 4 show that, based on the sample ofservice providers selected for residential and business consumers,UK prices are cheaper than all other countries for basic Internetaccess.


Exhibit 3 Comparison of residential Internet access prices as at August 2003

Residential prices - click for text version
Source: Oftel International benchmarking report, publishedOctober 2003


Exhibit 4 Comparison of business Internet access prices as at August 2003

Business prices - click for text version

Source: Oftel International benchmarking report, publishedOctober 2003

11.Current narrowband products

There are a number of dial-up Internet access packages availableto both residential and business consumers. These include:

  • Metered ('pay-as-you-go')

Subscription + cost of calls or
No subscription - cost of calls only

  • Partly unmeteredSubscription

Subscription + free usage at certain times/for a certainamount of time + call costs at other times

  • Fully unmetered

Subscription + unlimited free usage + no callcosts

11.1Metered

In August 2003, 28% of Internet households were using narrowbandmetered packages to access the Internet (see table above).

The UK pioneered the pay-as-you-go model, which has been copiedby many other countries. Packages are now available which offer consumersInternet access at rates below the price of local-rate voice calls.Some packages include a monthly subscription fee in addition to thecost of calls, whereas others are ‘subscription-free’.

Subscription-free Internet access led to a rapid growth in the numberof Internet users in the UK, and is likely to remain a good optionfor occasional or light users, and those who do not want to committo a contract. However, the proportion of consumers using pay-as-you-gopackages has fallen as more unmetered services have become available.

11.2Unmetered

Fully or partly unmetered packages are widely available and used.In August 2003, 34% of Internet homes claimed to use some type ofnarrowband unmetered access (see table above). Oftel estimates thataround four million Internet homes subscribe to narrowband unmeteredpackages.

This is partly the result of Oftel’s directions requiringBT to make available unmetered wholesale Internet access products(called FRIACO, see paragraph 13.2 below). This has allowed moreISPs to compete in offering unmetered access and offer greater choiceto consumers. Many ISPs offer FRIACO-based, unmetered retail packagesfor around £13 - £16 a month. The cable operators, NTLand Telewest, also offer their customers unmetered Internet access.

BT’s SurfTime Evening and Weekend Internet access productincludes free evening and weekend Internet calls for a fixed monthlyfee. However, in addition to SurfTime, consumers need to purchaseInternet service provision from a participating ISP.

BT also offers a Midband dial up product. The BT Midband serviceis provided over Home Highway lines to residential users and overBusiness Highway / ISDN2/2e lines to business users. BT Midbandcustomers pay a flat-rate payment of £35 a month for linerental and 150 hours per month at 64 kbps, or 75 hours at 128 kbps.

12.Alternative means of narrowband Internet access

Most people use a PC and fixed telephone line for narrowband access,but other methods are also possible.

12.1Mobile

The mobile phone is likely to be another way of accessing the Internet(around 75% of the UK population are mobile subscribers). With theintroduction of 2.5 G technologies, such as General Packet RadioService (GPRS), which provide higher data rate communications, WAPservices have become faster and therefore more user-friendly. Itis also possible to get mobile access to ‘real’ Internetpages (like those available using a PC) by combining a GPRS phoneand a laptop or personal digital assistant (PDA)

All four existing mobile networks have deployed GPRS, although T-Mobile’sGPRS service currently covers only picture messaging. Orange alsooffers another 2½ G product, High-Speed Circuit Switched Data(HSCSD).

Third generation (3G) mobile technology is covered in paragraph19.5 below.

12.2Television

Internet access through the TV set is being offered by the cableoperators. It is also possible to use TV set-top boxes to gain dial-upaccess to the Internet and some TVs have built-in Internet access.These and other means of access, such as games consoles, could becomea popular means of Internet access in the future.

Accessing the Internet in these ways may be more convenient forsome people who cannot afford, or do not want to use a computer.However, Internet access through the TV is not widely used at themoment.

Earlier this year the Office of the e-Envoy concluded a consultationon the potential for digital television to offer wider Internetaccess and to enable more people to access Government services electronically.The final policy paper 'Digital Television. A policy framework foraccessing e-government services' will be published, via a ParliamentaryStatement, in mid December 2003.

13. What is Oftel doing to promote competition in the narrowbandmarket?

Oftel is taking action in a number of areas relating to dial-upInternet access to ensure fair competition:

13.1Market reviews

The new EC regulatory framework requires Member States to reviewthe main electronic communications markets by July 2003, in orderto ensure that regulation remains proportionate in the light of changingmarket conditions.

One of the reviews has looked at the market for 'wholesale unmetered narrowbandInternet termination' - the services used by ISPs to provide retail unmeteredservices. Oftel's conclusion is that this market (outside the Hull area) isnow effectively competitive and has recently de-regulated this market

Oftel has also reviewed relevant call origination remedies, including FRIACOand Number Translation Services (NTS).

13.2FRIACO (Flat Rate Internet Access Call Origination)

FRIACO is an unmetered wholesale product that allows other networkoperators to offer their own unmetered Internet access products incompetition with BT. The UK was the first European country to introduceFRIACO, following a direction by Oftel in May 2000, and it has ledto some of the cheapest prices for Internet access in the world.Around four million UK homes now use unmetered Internet access.

There are two variants of FRIACO available. DLE FRIACO coveys Internetcalls to BT's local exchanges and Single Tandem FRIACO (ST FRIACO)conveys Internet traffic to BT's main regional exchanges.

Oftel has issued a number of directions relating to FRIACO includinga requirement to allow operators to pay monthly in arrears ratherthan in advance (May 2002), and a review of traffic patterns leadinga price reduction of approximately 8.5% for DLE FRIACO (July 2002).

On 21 July 2003, Oftel ordered BT to reduce its charges for wholesaleunmetered Internet access. Following an investigation and proposalsset out earlier this year, Oftel concluded that BT has been chargingoperators for certain call routing and call management measures thatare no longer necessary. As a result, BT’s wholesale chargehas been reduced by 17 per cent and backdated to June 2002, the datefrom when these additional measures were not needed.

In the EU market reviews (November 2003), Oftel decided that thecurrent restrictions on the supply of ST FRIACO be lifted. Previously,users of ST FRIACO had to bear the risk of the additional investmentin capacity being ‘stranded’ before the full costs havebeen recovered.

13.3NTS (Number Translation Services)

Oftel has estimated that 93% (i.e. the vast majority) of NTS callvolumes are data calls for dial-up Internet access services (source:Oftel’s Market Information Fixed Update Quarter 4 2002/3).The majority of these use 0845 local rate numbers. Despite the growthin alternative methods of Internet access such as broadband, it isclear that narrowband metered ‘pay-as-you-go’ servicesremain a very important mechanism for Internet access in the UK.

On 26 September 2003, Oftel published a consultation document called '0845and 0870 numbers: Review of retail price and numbering arrangements'. http://www.ofcom.org.uk/static/archive/oftel/publications/numbering/2003/0845condoc0903.pdf

Oftel has published this consultation document for two reasons:

  • First,Oftel has had concerns for some time that the designation of0845 numbers as 'local rate' and 0870 numbers as 'national rate'could potentially be misleading for consumers. This is becausemany phone companies do not align their geographic and non-geographiclocal and national prices, and because of the increasing useof inclusive call allowances and other discount schemes which makethe concept of local and national rate calls less relevant.
  • Second,BT has proposed reduced termination payments for 0845and 0870 calls (with knock-on effects on the revenues ofNTS ServiceProviders including ISPs) as a result of BT's decisionto reduce the standard retail prices for evening local calls (andhence0845 calls) from 1.5ppm to 1ppm and for weekend national calls (andhence 0870 calls) from 2ppm to 1.5ppm from 1 June 2003.Amongst other things, this calls into the question the sustainabilityof metered Internet access services using 0845 and 0870 numbers.

The consultationdocument examines whether the link between the retail pricesfor 0845 and 0870 numbers and the retailpricesfor geographic local and national calls should continue,and, if itis removed, other options for establishing the retailprices for calls to 0845 and 0870 numbers. One of the optionsconsidered isto allow those allocated 0845 and 0870 numbers to choosethe retail price for their services, subject to a priceceiling. Oftel's proposedcriteria for assessing these options are the interestsof consumersand the promotion of competition.

The closing date for comments is 30 December 2003.

Broadband

14.Oftel's broadband strategy

In order to provide a focal point for its work on regulation inbroadband markets going forward, Oftel has established a broadbandprogramme to develop and apply Oftel’s strategy in relationto broadband and co-ordinate Oftel’s approach to broadbandto ensure that all decisions made are coherent and contribute toOftel’s overall aim of achieving effective competition in broadbandmarkets.

Oftel’s broadband objectives are:

  • effective and sustainable competition in the provisionof broadband access and services (evidenced by no operators havingsignificantmarket power in broadband markets);
  • swift and firm correctiveaction in the event of anti-competitive practices;
  • a high levelof consumer awareness of the nature of broadband services andchoices available; and
  • a regulatory framework which is conduciveto further investment in broadband and roll-out to remote areasof the country.

Oftel's broadband strategy statement is available at
http://www.ofcom.org.uk/static/archive/oftel/publications/broadband/other/stratb1201.htm

Details of open compliance cases are available in:

15.Overview of the UK broadband market

The UK has one of the most competitive marketplaces in Europe forbroadband, with competition at the infrastructure level between cableproviders and DSL and numerous service providers competing with BTto provide retail DSL services to customers. So as to stimulate furthercompetition at the infrastructure level, Oftel has required BT toprovide local loop unbundling, shared access and ATM interconnection.In doing so, however, we have been careful to ensure that incentivesto invest in alternative infrastructure are not undermined. We arealso keen to ensure that BT has an incentive to invest and innovate.

There is also some limited provision by fixed radio that, togetherwith mobile radio and satellite technologies, should in future beable to deliver broadband services more widely. Larger business usersaccess broadband services via leased lines.

16.Availability

Around 80% of the UK has access to broadband via DSL and around45% via cable modem. Broadband fixed wireless access offers broadbandto around 12% of the UK and satellite, though not currently a mass-marketproduct, has the potential to deliver broadband across the UK.

16.1Cable modems

Cable networks pass around 50% of UK homes. ntl and Telewest areboth working to upgrade their networks so that they can provide broadbandservices to consumers in all the areas covered by cable networks.Telewest services are available to 4.9 million homes, of which 96%are broadband capable. NTL services are available to 8.4 millionhomes, of which 79% are broadband capable.

At present, 45% of UK homes (around 11 million) have access to broadbandvia cable.

On 12 September, Telewest announced it is to upgrade the last remaininganalogue part of its network in Birmingham, bringing high speedinternet and digital TV services to an additional 60,000 homes.The company is beginning its programme of expansion in October 2003,which will continue, on a street by street basis, until April 2004.

16.2DSL

Exhibit 5DSL availability across UK

 

Number of DSL -enabled exchanges

% of UK consumers and businesses within the area of a DSL enabledexchange

July 00

516

35%

Sep 00

619

40%

Mar 01

839

50%

Sep 01

1,000

60%

Mar 02

1,010

60%

May 02

1,115

66%

Aug 02

1,116

66%

Sep 02

1,119

66%

Nov 02

1,120

66%

Mar 03

1,167

67%

May 03

1,322

69%

July 03

1,507

71%

Sep 03

1,708

80%

Nov 03

Data to be made available shortly

Over 80% 5

  • BT's ADSL registration scheme

On 17 November 2003, BT announced that it was extending its demandregistration scheme for ADSL broadband by setting triggers for afurther 2,300 exchanges, serving two million homes and businesses.
When all these exchanges are enabled more than 99 per cent of UKhomes and businesses would be within the area of a broadband enabledexchange.

Since the web-based registration scheme was launched, more than630,000 customers have recorded their interest in getting ADSL broadband.By the end of November 2003, around 826 exchanges had been upgradedas a direct result of the scheme. A further 446 exchanges are inbuild. This leaves 600 of the very smallest exchanges without a triggerlevel. These exchanges serve around 100,000 households in total andhave less than 300 customers each.

BT’s aim is, with the help of regional and local partnerships,to roll out broadband to 100% of the UK by 2005.

  • Extending the reach of ADSL

On 24 September 2003 BT announced that the reach of broadband inenabled exchanges would be extended to homes within approximately6km line length of the exchange, subject to a line test.

This move, extending the previous limit of approximately 5.5km linelength, has increased the proportion of people who can receive broadbandin enabled areas from approximately 94 per cent to 96 per cent.This puts an estimated 600,000 new households in reach of ADSL.The distance restriction on ADSL coverage comes about because thestrength of the signal gradually reduces due to electrical resistancein the cables.

  • Bypassing optical fibre

BT is also looking at people who cannot get broadband because theyare connected to their exchange by optical fibre, which cannot supportADSL technology. The problem has typically affected households livingon new housing developments built during the 1980s. BT's solutionis to use copper cables to bypass the fibre. An ongoing build programmewill increase ADSL availability over the next 12 months to fibrecustomers who are served within an ADSL enabled exchange area. BTbegan taking orders from 31 July 2003.

  • BT's mini-DSLAMs trial ('exchange activate')

ADSL Exchange Activate, available commercially since 21 July 2003,is designed to deliver ADSL from small exchanges where it would otherwisenot be commercially viable.

Exchange Activate makes use of smaller exchange equipment (knownas mini DSLAMs) and the existing copper links between smaller exchangesand BT’s backbone network to provide ADSL service in blocksof 30 end users. The product requires a ‘sponsor’ topurchase a 30 end user block for £45,000, which covers rentalcosts for three years. The sponsor is then responsible for selectingan ISP to provide service to the end users. Each exchange with amini-DSLAM can support up to four service providers.

16.3Wireless networks (including satellite)

  • Broadband fixed wireless access (BFWA)

Current broadband fixed wireless access base stations have the potentialto cover around 12% of the UK. These are mainly in urban areas whereline of site is needed from the base station to a customer's premises.

  • Community wireless networks

At a regional level, a growing number of groups are developing communitywireless networks in areas where ADSL and cable modems are not available.These services are being used by both residential and business users.

  • Wi-Fi hot spots

Wi-Fi hotspots are based on the 802.11b standard, and allow anyonewith a wireless-enabled PDA or laptop to surf the Internet and sende-mail at high speed, without having to plug into a network. Wi-Fihotspots are being built throughout the UK and Ireland at locationssuch as railway stations, airports, business parks and coffee shops.Currently there are over 100 operational Wi-Fi sites in the UK anda number of operators offering services, including BT Openzone, Starbucks,Megabeam and UK Explorer.

  • Satellite

Two-way and one-way satellite access is also available throughoutthe UK, offering the potential to reach those parts of the UK outsideof the reach of ADSL or cable modem services.

16.4Extending availability

Oftel’s primary focus is to meet the needs of consumers throughpromoting competition at all levels of the value chain. For broadband,this means effective and sustainable competition in the provisionof broadband networks and services, and a regulatory framework thatis conducive to further investment in broadband and rollout to remoteareas of the country.

Oftel aims to assist the Government as necessary in meeting thereasonable needs of consumers outside areas addressable where broadbandis currently available. In so doing, Oftel aims to ensure that anymeasures are technologically neutral and, as far as possible, haveno detrimental effect on the development of competition in general.

Oftel contributes to the development and implementation of the Government’sbroadband policy, working with the DTI, English RDAs and the devolvedadministrations to help foster a competitive and extensive broadbandmarket. Oftel is also contributing to the work of the Broadband Stakeholders'Group (BSG), which has an important role to play in extending broadbandrollout and take-up.

  • UK Broadband Taskforce

The UK Broadband Taskforce was formally launched at the BuildingBroadband Britain conference in November 2002. The aim of the Taskforceis to bring together work focused on public sector procurement withwork focused on increasing availability in the private sector, bystimulating economic development and enhancing the delivery of publicservices through extending broadband services at the regional andlocal level.

The Taskforce includes a team of regional broadband co-ordinatorsfrom DTI who will ensure that public sector broadband procurementhas the maximum impact on regional economic development, and a teamfrom OGC to provide procurement assistance.

On 31 July, Stephen Timms announced the setting up of nine new bodiesfrom October in each of the English regions - Regional AggregationBodies (RABs). Set up in partnership with the RDAs the RABs willbe responsible for:

The RABs will be responsible for buying broadband services for publicsector organisations
cutting costs for public sector customers, particularly schools.

RABs will join up individual public sector broadband requirementsand present them as one bigger package to the market. This isintended to deliver better value deals and drive up availabilityby makingit more attractive to telecoms companies to make the capitalinvestment necessary to provide broadband in new areas.

  • Broadband Stakeholder Group

The Broadband Stakeholder Group (BSG) is Government's key advisorygroup on Broadband. It provides advice on the Government strategyto meet its target for the UK to have the most extensive and competitiveBroadband market in the G7 by 2005.

At the end of October 2003, over 300 people attended the BSG BroadbandBritain Conference in London. The event was themed around realisingthe value of broadband: how it is starting to provide real benefitsfor users and how this growing broadband value proposition can betranslated into real commercial success for the companies and organisationsthat make up the broadband value chain.

17.Take-up

Exhibit 6 Broadband take-up at end November 2003

Total broadband

3,021,000

 

DSL

Total

1,674,000

 

BT Wholesale

1,664,000

 

Kingston

10,000

Cable modem

Total

(Oftel estimate) 1,331,000

 

NTL

931,000

 

Telewest

(Oftel estimate) over 400,000

Fixed wireless access

 

6 Over 2,500

Satellite

 

6 Over 6,000

LLU

 

7,800

 

Number of new connections a week

 

Over 40,000

 

% UK homes with broadband

 

7 10%

 

These figures are based on data collected by Oftel directly fromservice providers.


Exhibit 7 UK broadband users as at end November 2003


Growth of Broadband users to Nov 2003 - click for text version

Source: Oftel (Underlying figures are confidential)

18. Prices (October 2003 international benchmarking survey, pricesas at August 2003)

Oftel's latest international benchmarking report looks at pricesfor services offering speeds of 257 kbps and above. An additional “entrylevel” always-on residential basket has also been includedto take into account the low speed always on services with a minimumspeed of 128 kbps, available in most benchmarked countries.

For the residential broadband basket (i.e. where the consumer hasa minimum bandwidth requirement of 257 kbps downstream):

– when cable modems are included prices in the UK are significantlycheaper than Germany and the US, similar to France and only in Swedenare prices cheaper; and
–when cable modems are excluded the UK is similar to France and cheaperthan all other countries.

For the “entry level” residential basket (i.e. whenthere consumer has a minimum bandwidth requirement of 128 kbps downstream):

-when cable modems are included, UK prices are significantly cheaper
than Germany and the US and more expensive than France and
Sweden; and
-when cable modems are excluded only in France are prices cheaperthan the UK.

Exhibit 8 Comparison of residential broadband prices, August 2003

Residential Broadband Prices - click for text version
Source: Oftel International Benchmarking study published October2003

For business broadband users:

  • for the most basic services available to business (i.e.where the business has a minimum bandwidth requirement of 257kbps downstream), only in France are prices cheaper; and
  • for businessservices where a minimum geometric mean bandwidth of500 kbps was required, UK prices are more expensive than theother countries benchmarked.

UK prices have remained relatively stable over the period August2002 to February 2003 but prices have fallen significantly in France,Germany and Sweden. This has had a negative impact on the relativeposition of the UK and results in the UK having the highest pricesfor services with a minimum speed of 500 kbps. This will change ifBT’s wholesale price cuts are fed through to the end user,these price cuts will being UK prices more inline with other countries.

Exhibit 9 Comparison of business broadband prices, August 2003 (minimum bandwidthof 129 kbps)

Comparison of Business prices - click for text version

Source: Oftel International Benchmarking study publishedOctober 2003

19. Current broadband products (retail and wholesale) and what Oftelis doing in these areas to promote competition

19.1Broadband cable

Both ntl and Telewest offer high-speed Internet access over theircable networks via cable modems. Telewest charges £50 for connection,reduced to £25 for customers subscribing to Telewest's telephoneand TV services as well. The standard cost of installation for newntl customers is £75 and £50 for existing customers.

Exhibit 10 Retail cable modem services on offer

 

NTL

Telewest

150 kbps

£17.99/month

-

500-600 kbps

£24.99/month for 600 kbps

£25/month for 512 kbps

1 mbps

£34.99/month

£35/month

2 mbps

-

£50/month


On 8 July 2003, AOL announced the roll out of its broadband serviceon NTL's cable network infrastructure.

19.2Digital subscriber line (DSL)

DSL creates a high-speed digital connection over an existing telephoneline using a pair of modems, one at the user end and the other atthe local exchange. The downstream data rate of ADSL is much higherthan the upstream data rate. DSL is a distance-dependant technology,which means that it is normally available to those consumers wholive within 5.5km of their local exchange (but see Extending thereach of ADSL, above).

  • Retail DSL services

There are over 100 ISPs offering retail services based on BT’swholesale ADSL products (see below), including BT’s own serviceproviders, BTOpenworld and BT Retail. Oftel estimates that BT's ISPshave around 50% of the retail DSL market.

Increasingly, ISPs are beginning to offer DSL services using ATMinterconnection and over unbundled loops (see also below) givingthem the freedom to provide innovative products e.g. with lower contentionrates or symmetrical bandwidth.

  • 256 kbps > 2 mbps and more

A number of ISPs have recently announced higher bandwidth ADSL servicesoffering speeds of up to 1mbps, 2mbps and beyond, available to residentialand business users.

  • SDSL

SDSL typically appeals to small and medium sized businesses, whichneed to both receive and transmit data at high speeds.

A number of ISPs are promoting SDSL to their business customersin areas that have SDSL coverage. These packages are based aroundLLU products (e.g. from Easynet and Bulldog) as well as BT Wholesale'sown symmetric products which it launched commercially on 8 September.

  • BT’s wholesale Asymmetric Digital Subscriber Line(ADSL) Service

BT offers a number of wholesale products, which are available toall service providers on the same terms and conditions. They are:

Exhibit 11 BT's wholesale DSL products

IPStream 500

An entry-level ADSL product aimed at the residentialmarket. It uses rate-adaptive technology to extend the rangefrom 3.5km to 5.5km from the local exchange at the expense ofslower upstream speeds.

IPStream Home

A self-install version of IPStream 500, offering lower connectionand rental charges.

IPStream Home 1000

A self install product aimed at the residential market.Customers who are on the IP Stream Home 500 service will beable to re-gradeand there will be a re-grade charge of £35.

IPStream S

Available in 500, 1000 and 2000 kbps variants. Its higher pricesand better service quality means that it is aimed at the SMEmarket. The S500 product uses rate-adaptive technology to extendthe range from 3.5km to 5.5km from the local exchange at theexpense of slower upstream speeds.

IPStream Office

Self-install versions of IPStream S products, offering lowerconnection and rental charges.

VideoStream

Enables the provision of video-on-demand services.

VideoStream Plus

Enables the provision of video-on-demand services and can beself-installed.

DataStream

Enables the provision of IP-based networks, such as corporateintranets.

DataStream Home & Office

Self-install versions of the DataStream products, offeringlower connection and rental charges


BT Wholesale is set to trial a new 1 mbps consumer ADSL servicein September 2003, with the intention of a commercial launch bythe end of the year. Prices and other details will be announcedlater in the summer. BT has dropped plans to launch an entry-levelwholesale 256 kbps ADSL product.

Exhibit 12 Price of BT's wholesale DSL products

1 September 2001

BT reduced its wholesale monthly rental charge for IP Stream500 from £35 to £30 a month. The connection chargefor VideoStream was also reduced from £625 to £50for 6 months from 1 October 2001.

15 January 2002

BT introduced self-install variants of its IPStream products,called IPStream Home & Office. Wholesale connection chargeswere reduced to £50 (ex VAT) with monthly rental chargesstarting at £25 (ex VAT) for IPStream Home. However,the end-user also had to buy or rent a DSL modem.

1 April 2002

Charges for IPStream fell dramatically when BT reduced themonthly rental charges for the IPStream 500 and IPStream Home500 products to £14.75 (ex VAT). Monthly rental chargesfor IPStream S and IPStream Office were also reduced.

29 April 2002

Charges for DataStream Home & Office and VideoStream Plusfell when BT reduced the annual rental charges to £111and the connection charges to £50 (both ex VAT).

1 November 2002

BT further reduced the annual rental charge to £101and introduced a wider range of virtual paths to provide serviceproviders with greater technical and commercial flexibilityoverthe service delivered to end users.

13 December 2002

BT Wholesale announced it would be offering ISPs half pricebroadband connections as part of a limited promotion from 10January until 31 March 2003. The activation charge for theIPStream Home 500 product was cut from £50 to £25. The activationcharge for business broadband services in the BT IPStream S rangewas also halved from £260 to £130.

3 April 2003

BT announced it would reduce the monthly rental chargesfor the IPStream Home 500 and, more dramatically, its IP StreamOfficeproducts from 1 May 2003:

 Previous monthly feeNew monthly
IP Stream Home 500 £14.75£13.00
IP Stream Office 500£40£18
IP Stream Office 1000£60£28
IP Stream Office 2000£80£38

7 May 2003

BT announced it would introduce price cuts for its DataStreamwholesale broadband product aimed at fixed line operators. BTsaid the cut, of 70p per month plus discounts, would come intoeffect just one month after its IPStream reductions (3 April,above).

4 September 2003

BT announced that it would further reduce the price of itsDataStream wholesale broadband product by 50p per month. Inaddition, BT announced an increase to the price of its IPStreamOffice2000 product of £5.00, to £43 per month.

20 November 2003

BT launched IPStream Home 1000. The wholesale monthly rentalcharge is £23.


On 20 November 2003, BT launched its IPStream Home 1000 product.

Oftel has concluded its investigation into a complaint from a numberof operators in relation to BT's IP Stream price cuts. Oftel's initialfindings were that these price changes, relative to the Datastreamproduct, could have prevented other operators from competing to providebroadband services to Internet service providers. Oftel thereforeheld urgent discussions with BT, and asked them to make reductionsin the price of the Datastream product.

Following these discussions, BT announced on 7 May 2003 that itwould cut its Datastream prices by 70p a line, with additional discountsfor high volume connections. On 4 September 2003, BT announced afurther Datastream price cut of 50p per month. In addition, BT hasincreased the price of its IPStream Office 2000 product by £5.00per month. Oftel has concluded that, following these price cuts,BT is meeting its regulatory obligations.

  • Kingston's wholesale AsymmetricDigital Subscriber Line (ADSL) Services

Since 1 November 2002 Kingston Communications has offered serviceproviders a range of wholesale products. They are:

Exhibit 13 Kingston's wholesale DSL products

IPLine RapidTime

Go An entry level self-install ADSL product aimed at the residentialmarket

IPLine RapidBiz Solo

A single PC ADSL product for the business market. Not availableas a self-install option

IPLine RapidBiz Net

A range of business ADSL products allowing network connection.Available in 500, 1000 and 2000 kbps variants.

Before the launch of these products, Kingston offered a wholesaleADSL product that could be used by service providers primarily tooffer services aimed at the residential market.

All Kingston's wholesale products have a £55.32 (ex VAT) connectioncharge with annual rental charges ranging from £231.60 to £1,122(both ex VAT), depending on speed, contention and type of connection.

  • ATM interconnection

Following Oftel's June 2002 direction requiring BT to provide interconnectionto its BT's broadband network, operators now have the option of offeringcompeting wholesale and retail services. The purpose of the Directionis that the prices BT charges for interconnection are set at a levelthat encourages competition between the different providers. As aresult of the direction ISPs are offering innovative services tocustomers.

  • Local Loop Unbundling (LLU)

LLU enables competing operators and service providers to createtheir own DSL products rather than having to buy BT’s DSL productson a wholesale basis. LLU enables other operators and service providersto install their equipment in BT's exchanges in order to offer theirown broadband services to end users.

The LLU condition in BT's licence came into force on 8 August 2000.This sets out BT’s obligations and gives Oftel powers to actif problems occur. In addition, the EC Regulation on LLU came intoforce on 2nd January 2001. Since then, there has been an intensiveprogramme of work by BT, other operators and Oftel to set the technicaland operational framework for the LLU process. Where necessary,Oftel has taken action to resolve disputes.

Exhibit 14 LLU take-up

 

Jan 03

Mar 03

May 03

July 03

Sep 03

Nov 03

Total loops unbundled

2,300

3,000

4,600

6,400

7,600

7,800

Towards the end of November2003, there were around 7,800 (fully and shared) unbundled loopsbeing used by operators and service providersto deliver a range of broadband services to end-users including,for example, SDSL and 4 mbps services. Services were available from178 physical co-location and 50 distant location sites.

For more information about the progress made with ADSL rollout andLLU, including current issues and upcoming developments, see Oftel'sDSL fact sheet at
http://www.ofcom.org.uk/static/archive/oftel/publications/broadband/dsl_facts/index.htm

19.3Leased Line Access

Leased lines are permanent high-capacity telecommunications links.They are supplied by network operators to business users and areused by operators and services providers, for example, to supplybackhaul for mobile networks and connections to the Internet usedby Internet service providers. Leased lines may be provided at avariety of bandwidths ranging from below 2 mbps to 2.5 gbps.

  • Oftel issued its comprehensive Direction on Partial PrivateCircuit (PPC) prices and service level agreements on 23 December2002. PPCs are the key wholesale components of leased lines whichtelecoms operators buy from BT so they can offer their own servicesdirectly to end users. The prices set by Oftel for PPCs are typically50 per cent lower for connection and 20 per cent lower for rentalthan BT's previous charges. Oftel believes these charges betterreflect the costs BT incurs in providing these services. The amendedchargeshave been backdated to 1 August 2001 when PPCs were first introducedby BT.
  • Oftel also required BT to make a number of improvementsto its service level agreement for PPCs. These improvements includeBT paying appropriate levels of compensation to other operatorsin the event of late delivery. This will act as an incentive forBTto provide a high quality service to other operators.

Overall, Oftel believes that these measures will allow operatorsto compete more effectively with BT in the retail market for leasedlines.

Oftel is considering whether further action is required in the leasedline market as part of its implementation of the new EU regulatoryframework (see below).

19.4Broadband Fixed Wireless Access

Broadband fixed wireless access (BFWA) allows high-speed data connectionsusing radio links between an aerial located on the user's premisesand a base station, rather than using a telephone line or a cabletelevision network.

  • 3.4GHz

Licences were originally awarded in the 3.4GHz spectrum to Ionicaand Thus in 1993. Ionica's licence was revoked and given back tothe Radiocommunication Agency for reallocation. In July 2002 thegovernment removed limitations of use and roll out obligations andthe licences were re-auctioned in June 2003. There were 12 biddersfor 15 licences and Poundradio (a subsidiary of PCCW Hong Kong) won13 out of 15 licences. The other two went to Red Spectrum and PublicHub. The auction raised £7,414,000.

In September 2003 PCCW acquired Red Spectrum’s licence andnow PCCW own 14 out of 15 licences.

  • 3.6-4.2GHz

GX Networks recently acquired Firstnet, and operate the first wirelessnetwork built in the UK. This network was built using spectrum at3.6-4.2GHz and covers the Thames Valley and several major UK cities.

In October 2003, GX Network agreed to purchase Pipex and plans tosell its broadband services under the Pipex trading name.

  • 28GHz

The RA also auctioned spectrum for BFWA at 28GHz in November 2000.Energis, Your Communications, Faultbasic, Broadnet UK, Chorus Communicationand Eircom NI won licences in seven out of fourteen regions, collectivelycovering 60% of the UK's population. There were no bidders in theremaining seven regions and Eircom has surrendered its licence. Theother licensees are at various stages in deploying networks. YourCommunications is the only company to have launched a service. Itsservices offer low contention data services to businesses at 512kbps (£500 connection charge, £4000 yearly rental) and3 mbps (£1000 connection charge, £15,200 yearly rental)from completed base stations in Birmingham, Manchester, Cumbria andLeeds.

The 28GHz licences that were not awarded in the 2000 auction wereavailable for auction until mid October 2002 at the original reserveprices (varying from £1 to £2 million) and under thesame terms, but no bids were made. The RA launched a consultationon the future process for awarding the available 28GHz licences,this proposed that licences should not contain a ‘use it orlose it’ clause or restrict the purposes for which they canbe used. The consultation closed on 14 November and the RA has decidedto remove the clause.

  • Other spectrum

Other operators have spectrum that could be used for higher bandwidthfixed wireless access services, but deployments have been limited.For example, there has been some trial deployment by ntl of 10 GHzequipment for its customers.

  • Wireless local area network technologies (WLAN) or 'Wi-fi'

The UK recently amended the regulatory framework to permit the commercialuse of wireless local area network technologies (WLAN), such as 802.11b,in the 2.4GHz licence-exempt spectrum. Following consultation bythe RA earlier this year, parts of the 5Ghz band have also been availablefor commercial public services since 12 February 2003.

BT has announced recently that they will provide wholesale Wi-fiproducts across more than 400 locations in the UK by autumn 2003.There are now more than 1,800 hotspots in the UK and The Cloud, aWi-Fi network wholesaler, has secured access to 7,000 more Hotspotssites. The biggest players in the UK are BT Openzone, Starbucks (T-Mobile)and Megabeam.

For further information see the Radiocommunications Agency’s broadbandwireless update at:

ttp://www.ofcom.org.uk/static/archive/ra/topics/broadband/index.htm

19.5Mobile Higher Bandwidth Access

The Universal Mobile Telecommunication System (UMTS) is a so-called "third-generation” (3G),broadband, packet-based system to be deployed in Europe for the transmissionof text, digitised voice, video, and multimedia to mobile computerand phone users. The likely data rates range from about 64-144 kbpsfor fast moving users in rural areas (depending on the quality ofservice), up to 384 kbps for slow moving users in urban/suburbanareas.

There are 5 licensees for 3G networks, all four incumbent 2G operatorsand Hutchison 3G, a new entrant to the market. Hutchison 3G (underthe brand name of '3') launched commercial sales in March 2003. Commercialservices from other service providers are expected to become availablebetween now and 2004.

19.6Broadband Satellite Access

Some satellites in orbit around the Earth can offer broadband services.Data transfer has traditionally been in one direction only from thenetwork to the end user ('one-way' satellite). However, new developmentshave enabled a satellite return path to be used ('two-way' satellite).

In April 2003, the Office of the Deputy Prime Minister launcheda 3-month consultation looking at the siting of satellite dishesand antennas. The consultation offers five options, ranging fromno change to full deregulation.

  • Two-way broadband satellite

Two-way broadband satellite offers the potential to reach thoseparts of the UK outside of the reach of an ADSL or cable modem connectivitysolution. A number of service providers have launched broadband satelliteservices in the UK and subscriber numbers are increasing.

For example, Aramiska's services start at £99 a month forspeeds of up to 256 kbps downstream and 64 kbps upstream, with a £500installation and connection fee. BTOpenworld charges £109.99/monthfor its multi-user product monthly and £59.99 for the single-userservice. The connection charges of £1,299 and £899 respectivelyfor the services both cover the purchase of equipment. [All pricesexclude VAT.]

  • One-way broadband satellite

One way satellite enables high-speed always-on downloads to theend-user, using the PSTN as the return path. A number of ISPs areoffering retail services based on this.

20.Review of the broadband market

The new EC regulatory framework requires Member States to reviewthe main electronic communications markets by July 2003, in orderto ensure that regulation remains proportionate in the light of changingmarket conditions. Oftel's broadband market review divides the broadbandmarket into three distinct areas, which are:

  • Retail leased lines and the markets for wholesale inputs –the retail section will cover analogue and digital up to and including8 mbps.
  • DSL (wholesale bitstream access)
  • Local Loop Unbundling (unbundled access)

20.1Retail leased lines and wholesale inputs

http://www.ofcom.org.uk/static/archive/oftel/publications/eu_directives/2003/eu_leased_lines/index.htm

Oftel’s consultation document published in April 2003 proposedthat there is now a market for wholesale symmetric broadband originationwhich includes not only wholesale terminating segments used for retailleased lines, but also radio base station backhaul circuits, LLUbackhaul and any other symmetric broadband origination products (suchas SDSL) which may be introduced in future.

Oftel proposed in the April 2003 document that this market (andthe retail leased lines market) should be split into three, witha proposed finding of SMP at low and high bandwidths (up to and including155 mbps) and no SMP at very high bandwidths. The review also proposeda finding of SMP in wholesale trunk segments.

Oftel proposed regulation at the wholesale level broadly similarto that currently applying, other than at very high bandwidths whereit is proposed that any existing regulation should be withdrawn.Thus the measures in the PPC Directions and the LLU backhaul Directionpublished in August 2002 are to a large extent being carried forwardinto the new regime, providing certainty for operators. At the retaillevel, Oftel proposed regulation only for low bandwidths, agreeingwith the European Commission that reliance should instead be placedon wholesale regulation for high and very high bandwidths.

The consultation ended in June 2003. A second consultation willbe issued before the end of the year.

20.2 DSL (wholesale bitstream access)

http://www.ofcom.org.uk/static/archive/oftel/publications/eu_directives/2003/eu_dsl/dsl.pdf

The wholesale broadband access market review consultation documentproposes that BT has SMP in the following markets:

  • the market for asymmetric broadband origination in theUK (excluding Hull); and
  • the UK market for broadband conveyance.

The remedies include a specific requirement to provide ATM interconnectionon a retail minus basis as well as a general access obligation. Thereview also proposes that Kingston has SMP in the market for asymmetricbroadband origination in the Hull area.

The consultation ended on 7 July 2003. Oftel has considered the responsesand intends to publish a second consultation before the end of theyear.

20.3LLU

Proposals on local loop unbundling will follow in 2004.

Notes

  1. Oftel’s research examines UK SMEswith 1-250 employees and a minimum annual turnover in excess of £50K
  2. A proportion of narrowband users are unsurewhich package they are using
  3. This figure includes residential and SMEsubscribers to ADSL, cable modem, fixed wireless and satelliteservices and services provided via unbundled local loops. It doesnot include leased lines.
  4. 80% of people live in areas where the exchangehas been upgraded, but BT advises Oftel that technical limitationsmean 96% of the population within an enabled exchange area canget broadband services.
  5. Oftel understands from BT that because of the technical limitationsof ADSL, an average of 96% of the population within an enabledexchange area can get broadband services. This means that 77% ofthe UK can get broadband.
  6. These figures are underrepresented, as they do not include allsubscribers to rural community networks.
  7. This figure is based on Oftel’s estimate that 87% of broadband connectionsare to residential customers and that there are 25 million homes in the UK (Officeof National Statistics)