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Ofcom continues review of wholesale broadband markets
Thursday 15 November 2007 18:05:41 by Andrew Ferguson

The news that Ofcom has launched a consultation process on the wholesale broadband access market in the UK may seem like a knee jerk reaction to the recent news about a new EU based super telecoms regulator, but this consultation is part of a process that started in November 2006.

The consultation will consider the UK as four distinct areas:

  • those geographic areas covered by exchanges where KCOM is the only operator ("the Hull area");
  • those geographic areas covered by exchanges where BT is the only operator ("Market 1");
  • those geographic areas covered by exchanges where there are 2 or 3 Principal Operators (actual or forecast) AND exchanges where there are forecast to be 4 or more Principal Operators but where the exchange serves less than 10,000 premises ("Market 2"); and
  • those geographic areas covered by exchanges where there are currently 4 or more Principal Operators AND exchanges where there are forecast to be 4 or more Principal Operators but where the exchange serves 10,000 or more premises ("Market 3").

This gives a slight change to the previous definitions where exchanges with 4 or more operators were considered "Market 2" if the exchange did not cover more than 10,000 lines. This increases the forecast number of exchanges in "Market 3" for December 2007 from 871 to 1070.

Ofcom considers that KCom has SMP (Significant Market Power) in the Hull area and that BT has SMP in Market 1. BT separately has SMP in Market 2 which is believed to be considered on its own as remedies in this area may be different to that of Market 1. In Market 3, the most competitive market, with BT, LLU operators and Virgin Media cable most likely available, no one was considered to have SMP.

The lack of an operator with SMP means that Ofcom would have to revoke its SMP conditions upon BT within Market 3. This would mean BT would be treated the same as any other operator within those group of exchanges and would not be required to provide wholesale solutions (such as the current IPStream products) to other providers. They could also adjust their prices as they saw need. To avoid instability to the market if this provisional conclusion is reached, Ofcom would require BT to continue to honour existing wholesale agreements for 12 months after the withdrawal of the SMP conditions. This could potentially mean many providers may find the need of a new wholesale provider, although BT is unlikely to withdraw.

The question now is what will Ofcom do to promote/improve wholesale competition in the areas where it is needed, and this is where the consultation process is important. What do all the interested parties have to say on the matter?

One thing Ofcom seems clear on is that LLU (Local Loop Unbundling) is not economically viable on a national basis, but the amount of regulation in areas where LLU is viable may benefit from the removal of unnecessary regulation.

One interesting area is that while currently BT Wholesale IPStream services are sold to the public on the basis of the same price no matter where you live, there is already a rebate scheme in place such that the price the provider pays varies according to where you live in the country. The current scheme gives providers a monthly rebate of £1.24 if a line is on one of the 1016 busiest exchanges. Under the new 21st Century Network WBC product range, this price differential between the two bands looks set to increase to £1.76. A basic line connection will cost £6.28 in band 1 and £8.04 in band 2 (currently band 2 costs £8.40 a month). One other feature of WBC is the ability to book QoS (Quality of Service) sessions which can be used to guarantee download speeds for services such as BT Vision. In band 1 the ability to do this will cost 40p monthly for assured sessions; in Band 2 this rises to £3.40. The individual charge in both bands will be 1.5p per session + 0.006p per 100Kb/minute. Real Time sessions are £3.20 for 350Kbps in band 1 and £9 for the same in band 2.

This presents interesting challenges as we move ever closer to the next generation of BT Wholesale products, and shows the importance of what Ofcom is doing. Should BT Wholesale be allowed a two tier pricing system or perhaps even more pricing tiers if it is willing to ensure a degree of wholesale access is available via all BT telephone exchanges? Should other wholesale providers be given incentives to encourage them to increase their coverage to yet more exchange areas? Or should the view be taken that the copper local loop needs a massive overhaul so that it provides affordable and true next generation speeds on a par with countries like France and Sweden by pushing fibre closer to peoples home?

Comments

Posted by muymalestado over 9 years ago
MrSaffron's last sentence:
"Or should the view be taken that the copper local loop needs a massive overhaul so that it provides affordable and true next generation speeds on a par with countries like France and Sweden by pushing fibre closer to peoples home?"

Well, speaking from a Northern Highlands perspective, what could I say other than tell them to get unrolling those drums of fibre - right away.
Posted by adriandaz over 9 years ago
"those geographic areas covered by exchanges where KCOM is the only operator ("the Hull area");"

It's alright mentioning it, but will they ever do anything about it? I think not...
Posted by herdwick over 9 years ago
They did acknowledge consumer feedback from the KCOM area about lack of choice. KCOM's defence was that they already provide a good broadband service, but they would say that.

Are KCOM obliged to provide LLU and Wholesale services but nobody is taking them up on it ? If not you and your neighbours can put your input into the next phase of the consultation.
Posted by adriandaz over 9 years ago
Yes KC have the "same" obligations as BT in terms of Wholesale and LLU provision, KC do not have an "Openreach" middle man. With them charging the same access prices as BT for access to such a small area, compared to BT, it isn't really viable for most companies to enter the market. I suspect O2 and Sky (who offer other services here like TV and mobile) could sign many customers up from their existing userbase..given the chance.
Posted by KarlAustin over 9 years ago
The interesting thing, is that if BTs obligations regarding Market 3 and providing wholesale solutions in Market 3 were withdrawn, then BT would probably go back to having SMP in Market 3 - Because if they dropped all the IPStream customers then a large percentage of them would get their broadband from BT without even thinking about it and then BT would be back to having SMP and having to provide a wholesale solution and we'd end up in a nasty cycle that would do nothing for the industry (customers getting disrupted etc.)
Posted by adriandaz over 9 years ago
Would they drop something which makes them vast ammounts of money? Surely they make more from ISPs than customers?
Posted by adriandaz over 9 years ago
Also, BT Wholesale don't supply directly to customers do they?
Posted by john (Favicon staff member) over 9 years ago
With regard KCOM, Ofcom stated (4.59) that there is no planned LLU uptake. They are planning on imposing the same requirements as to BT, however the Hull area is just 14 exchanges (0.4% of broadband connections), and many providers may see it as too small a market to enter for the costs involved.
Posted by herdwick over 9 years ago
if Virgin Media don't have SMP in Market 3 then BT won't either. As its a wholesale market review it doesn't matter whether they are IPStream customers via BT Retail or other ISPs or "integrated BTBroadband" as the wholesale end is the same in both cases.
Posted by herdwick over 9 years ago
I would have thought that a Hull urban exchange would look much like any other, or are we saying KCOM's costs are higher than BT for LLU or is it just the extra hassle of a new supplier to the LLU operators that put them off.

The population is 250,000 so getting 5 or 10% of them as KCOM IPstream-equivalent customers ought to be attractive to an existing ISP, even if LLU isn't attractive.
Posted by chrysalis over 9 years ago
I see what this is possibly leading to, this could potentially solve the deadlock of FTTH, I assume then in the areas where BT do not have SMP market 3 they could rollout FTTx and not be treated like a SMP in the process. This on the face of it looks to be a good move.
Posted by herdwick over 9 years ago
Openreach would have SMP obligations on FTTH just as they continue to do in the local copper loop market in Market 3. This stuff is the wholesale broadband market rather than access network market.
Posted by john (Favicon staff member) over 9 years ago
I don't believe there is anything stopping BT Wholesale rolling out FTTH to Market 3 in competition with BT Openreach though- as unlikely as it seems.
Posted by CARPETBURN over 9 years ago
I made a comment in the forums somewhere about how you should pay according to the service you receive and people laughed. Dividing the country up into areas is a good idea, it will clearly demonstrate where demand for services is at its greatest and hopefully give the push to someone to finally roll out fibre.
Posted by chrysalis over 9 years ago
carpet of course they will laugh the current model which has artificially biased pricing towards data transferred over burst speed effectively means everyone with high speed synchs is been subsidised, any kind of pricing model that made you pay depend on what you recieved would almost certianly mean people with high synchs paying more then what they do now.
Posted by CARPETBURN over 9 years ago
Ive said time and time again if i had to pay more because my speed was higher than others and those stuck with slow speeds paid less i wouldnt mind that one bit, im a great believer in you get what you :)
Trouble is though even if that ended up being the case and profitable areas of the country had more money lavished on them to provide things like fibre the rest of those without it would still moan and even if they did then get it they would moan cos its more expensive than the 2Mb rubbish they have had for years.
Posted by herdwick over 9 years ago
I too believe in paying for what you use - consumption of peak time GB seems very popular with the ISPs as a measure of this.
Posted by CARPETBURN over 9 years ago
Id go along with that thought herdwick if they drop the always on blabber they put next to the price.
Posted by Jamiepw over 9 years ago
I wonder how they will differentiate when there is a Wireless ISP that covers the area?

Posted by timmay over 9 years ago
Sounds like things are set to get a whole lot messier! Surly this will just bring better/faster/cheaper connections to people that already have the best. What about those areas where there is no competition?
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