Ofcom continues review of wholesale broadband markets
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?