Wednesday, June 22, 2005

BT Avoids Break-up in Agreement with UK Regulator

BT reached an agreement with Ofcom, the telecom regulatory authority in the UK, that avoids the break-up of the company and provides a long-term framework for the UK's fixed line telecommunications market. Under the agreement, BT agreed to substantive changes in its structure and behaviour, significant cuts in the price it charges for unbundled local loops, to continue its universal service obligations, and to ensure that its 21CN Next Generation Network does not inhibit reasonable developments by alternative network operators. Full details of the agreement will be published by the end of the month. Some key points include:

  • BT will set-up a new - and operationally separate -- business unit, provisionally entitled Access Services, but with a distinct new brand and identity. The new business unit will be staffed by around 30,000 employees presently responsible for the operation and development of BT's local access networks. It will have separate physical locations for management teams and separate bonus schemes with long-term incentive plans that reflect the objectives of the new business unit, not those of the BT Group plc.

  • The new business unit will be required, through a set of formal rules on governance and separation, to support all providers' retail activities (including those of BT Retail) on a precisely equivalent basis. The new business unit will offer a universally available product and service set, including Local Loop Unbundling (LLU), shared loops (where BT Retail continues to provide voice services and another provider is responsible for broadband), Wholesale Line Rental (WLR), and Backhaul service. Equivalence of Input will also apply to IPStream - BT's wholesale internet products used by many Internet Service Providers (ISPs) to provide broadband connections for their customers.

  • The BT Group plc shall adopt the same clear principles in the design, procurement and build of its next generation 21st Century Network.

  • BT Group plc and the new business unit's compliance with the proposed undertakings will be monitored by a new Equality of Access Board (EAB), which will also oversee the delivery of other legacy regulated products not directly delivered by the new business unit.

  • BT will cut the price for full LLU by 24% per cent from £105 to £80 per year. It has also committed to deliver stability on IPStream pricing until there are 1.5 million unbundled lines in the UK to encourage competition.

Ofcom Chief Executive Stephen Carter said: "Effective regulation for the telecommunications industry needs to be forward looking, needs to encourage competition in the right places and needs to deliver tangible benefits for customers."

BT chief executive Ben Verwaayen stated "This has been a meticulous process during which BT has engaged in depth with Ofcom and the industry. We came up with bold proposals in February that reflected the reality of the market and we have now committed to a framework to ensure others have confidence in the settlement. It is time to draw a line under twenty years of micro-regulation and to welcome a new era where regulation is focused where needed and rolled back elsewhere."
  • 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.

  • 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.