Ofcom unveils new comms framework

Regulator Ofcom has announced a number of proposals intended to increase sustainable and effective competition in broadband data, content and voice services. The proposals focus on:

* Ofcom's Local Loop Unbundling (LLU) market review consultation, which proposes a significant development of the LLU market to allow operators to target investment and to develop scale in the creation of new and competitive high-speed data services based in the UK's local broadband exchanges. Ofcom welcomes BT's commitment to that process and its announcement this morning of a 70% reduction in its charges to operators leasing unbundled shared local loops.

* The establishment of a Telecoms Adjudicator, independent of regulator and industry, intended to oversee the swift development of LLU processes.

* Ofcom's final statement on its Wholesale Broadband Access market review, also now published. The statement sets out a framework, pricing approach and a technology evolution path to enable all operators to plan for long term and large-scale investment.

* In the fixed-line voice market, the need to address some of the structural disadvantages inherent in the current Carrier Pre-Select (CPS) regulations. In this context, Ofcom welcomes BT's commitment to offer local call bundles to its CPS competitors interconnecting at the local exchange, with the benefit of greater cost savings and operational efficiency.

* Ofcom is reviewing and will be consulting on the overhead wholesale charges paid by operators to BT to connect to BT's network.

Development of broadband and the local loop

The background to the proposals has been shaped by emerging changes in the architecture of the UK's telecoms networks.

Operators can currently connect to BT's network in one of three ways:

* They purchase products such as IPStream which run all the way from the customer's premises through BT's own broadband network to the operator's broadband network.
* They purchase products such as DataStream which connect to the main network switches at the core of BT's transmission infrastructure before routing data onto the operator's own broadband network.
* They connect to BT's copper local loops in the exchange.

Over time, new IP-based networks will increasingly replace older ATM-based networks. The efficiencies offered by IP networks mean that the local loop and local broadband exchange may provide much greater scope for infrastructure competition in the future. Ofcom therefore believes that a renewed focus on the local loop will be critical in ensuring a fully competitive telecoms market for the long term.

LLU market review

The consultation document on the local access market published is the first part of a two-stage consultation process. Ofcom is setting out views for consultation about the market definition, competition characteristics and how competition might be encouraged further.

BT's proposed LLU price cuts are expected, subject to volumes, to be fully implemented over the course of the market review.

Wholesale broadband access market outcome

In its final statement on the Wholesale Broadband Access market review, Ofcom confirms that it will require BT to make DataStream available to operators within a retail-minus pricing regime.

Ofcom is currently analysing the appropriate retail-minus margin for DataStream operators. Its current expectation is that the current margin (typically around £2.50 against the benchmark BT Home 500 product) will be increased by £1. The margin rule would be applied by an appropriate formula to the full range of products, including capacity-based charging. Ofcom will begin a consultation on its analysis in the week of 24th May.

It is likely that DataStream or similar products will continue to play an important role for several years to come. They will also fulfil a purpose in outlying areas beyond metropolitan exchanges in the longer term. However, Ofcom believes that the need for DataStream may be transitional in those parts of the country in which LLU-based competition emerges. In light of this Ofcom will carry out a further early market review in 2005.

Ofcom's aim is to ensure that operators dependent on DataStream to attain reach and scale during this transition benefit from the certainty of a defined margin, whilst simultaneously removing the barriers to adoption of the local loop as the primary point of infrastructure competition for the long-term.

Full details of the LLU market review consultation and the Wholesale Broadband Access market review statement can be found online at www.ofcom.org.uk

Independent telecoms adjudicator

Ofcom has also announced a proposal to establish a new role, independent of regulator and industry - the Telecoms Adjudicator. The objective of the Adjudicator will be to facilitate swift implementation of the processes necessary to enable competitors to gain access to BT's local loop on an equivalent basis to that enjoyed by BT's own businesses. In the coming weeks Ofcom will be engaging with the industry to develop the role further.

All of these proposed changes will take effect through 2004, in time to feed into the final conclusions of Ofcom's Strategic Review of Telecoms at the end of the year.

Ofcom chief executive Stephen Carter said: "These proposals, combined with the recent proposals on migration charges, mark an opportunity to accelerate the prospects for sustainable competitive investment in Broadband Britain.

"Furthermore, Ofcom particularly welcomes BT's commitment to both price and process improvements in these key wholesale products."

Greater competition in voice services

In narrowband voice services, Ofcom is also taking a number of steps to increase sustainable and effective competition based on infrastructure investment.

Ofcom will be publishing a consultation document to consider changes to the current Carrier Pre-Select (CPS) regulations to include a local calls product bundle for CPS operators connecting to local exchanges.

Ofcom believes that this proposal is likely to  address the structural cost disadvantage inherent to the CPS regulations. It will also provide incentives for operators to build out their infrastructure to BT's local exchanges.

In that context, Ofcom welcomes BT's proposal to offer such a product, as well as their undertaking to continue publishing prices for wholesale calls. In light of these announcements by BT, combined with further analysis by Ofcom, Ofcom is not intending to take forward a wider review of wholesale end-to-end calls as previously planned.

Ofcom will also be publishing a consultation document after its review of PPP (BT's Product Management, Policy and Planning) charges - the overhead charges paid by operators to BT to connect to BT's network. The consultation will consider how to achieve equivalence amongst industry players in respect of these charges.

BT together investigation – Interim measures

Separately, in relation to its Competition Act investigation into changes to BT's BT Together tariffs, Ofcom has announced that, having reviewed the case for interim measures, on the evidence currently available it has decided not to seek such measures.

Ofcom is continuing its wider investigation of the issues in order to reach its final conclusions.

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