Thursday, November 18, 2004

UK Regulator Seeks Changes from BT, Not a Break-up

Ofcom, the official telecom regulator in the U.K., published its proposals to support the growth of greater competition, innovation and investment certainty in the UK telecommunications sector. The proposals are intended to prepare the ground for a new regulatory framework as the market undergoes a migration to next-generation networks based on IP.

Following a strategic review of the market, Ofcom said it has identified two key problems:

  • Firstly, an unstable market structure in fixed telecoms, dominated by BT and with alternative providers that are, in the main, fragmented and of limited scale.

  • Secondly, the continuance of a complex regulatory mesh, devised over twenty years of regulation and in many areas dependent upon intrusive micro-management to achieve its purposes, yet which, in aggregate, has failed effectively to address the core issue of BT's control of the UK-wide access network.

Rather than a breakup of BT, Ofcom said it prefers an approach that requires BT to deliver real equality of access. Ofcom is proposing that the most effective way to deliver the changes required will be for regulation to address head-on the barriers preventing competitive wholesale access to BT's network. Real equality of access would mean that BT must offer competitors the same or similar wholesale products and prices, as are made available by BT to its own retail businesses, and; transactional processes, as are made available by BT for the use of its own retail businesses. Ofcom would require BT to make changes to its wholesale products, product development process and transactional processes; it would also require BT to commit to substantive behavioural and organisational changes.

Ofcom is proposing that if a fit-for-purpose Wholesale Line Rental product is successfully introduced in 2005, a staged withdrawal of retail voice regulation would follow. This would also be accelerated as converged voice and data services develop and competition between fixed and mobile services increases.

Ofcom also intends to re-examine the scope for deregulation of telecommunications services directed at larger businesses, opening up the prospect of BT having greater flexibility to package services for the largest corporate customers.

In response, BT's Chief Executive, Ben Verwaayen said: "We welcome Ofcom's call for a new settlement where regulation is tightly focused on the parts of the market that need it, with deregulation elsewhere. This would be a real prize for the industry, consumers and for British competitiveness. We will engage constructively with Ofcom and the industry during the final phase of the Strategic Review, looking forward to achieving regulatory certainty that will encourage investment and innovation."
  • The UK government licensed the first telecom competitor (Mercury) in 1980s and encouraged the company to build its own network. From 1994 to 1997, the regulator at that time (Oftel) favored competition between fixed-line companies that owned their own networks - and particularly those with networks that actually came into homes and offices, such as cable operators. Oftel also licensed two extra mobile networks, so that there were four network operators competing from the mid-1990s. However, in the mid-1990s Oftel was less favourable to companies that did not own a network. In fact, it has only been since 1998 that regulation has made it easier for service providers such as Centrica and Carphone Warehouse to launch phone-call services.

  • There are five mobile network operators in the UK, plus others which offer services by using another company's network. On the other hand, BT has an 80% share of the residential phone market, and supplies most business lines as well. For Internet access, it seems at first glance that there's a whole variety of internet service providers (such as AOL and Freeserve) supplying narrowband and broadband services to homes and offices. However, almost all of them use just one of two networks -- cable or DSL.

See also