Ofcom Promotes LLU in UK

Ofcom announces local loop unbundling (LLU) market review, wholesale broadband review, proposal for a telecom adjudicator

May 13, 2004

5 Min Read

LONDON -- Ofcom today announced a number of proposals intended to increasesustainable and effective competition in broaderband data, content andvoice services. The proposals focus on:

  • Ofcom's Local Loop Unbundling (LLU) market review consultation,announced today. The consultation proposes a significant development of the LLU market to allow operators to target investment and to develop scale inthe creation of new and competitive high-speed data services based in theUK's local broadband exchanges. Ofcom welcomes BT's commitment to thatprocess and its announcement this morning of a 70% reduction in itscharges to operators leasing unbundled shared local loops.

  • The establishment of a Telecoms Adjudicator, independent of regulatorand industry, intended to oversee the swift development of LLUprocesses.

  • Ofcom's final statement on its Wholesale Broadband Access marketreview, also published today. The statement sets out a framework,pricing approach and a technology evolution path to enable all operators to plan forlong- term and large-scale investment.

  • In the fixed-line voice market, the need to address some of thestructural disadvantages inherent in the current Carrier Pre-Select (CPS) regulations. In this context, Ofcom welcomes BT's commitment,announced this morning, to offer local call bundles to its CPScompetitors 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 BROADERBAND AND THE LOCAL LOOP

The background to the proposals has been shaped by emerging changes inthe 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 theoperator'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 Internet Protocol (IP) based networks will increasinglyreplace older ATM-based networks. The efficiencies offered by IPnetworks mean that the local loop and local broadband exchange mayprovide much greater scope for infrastructure competition in the future.Ofcom therefore believes that a renewed focus on the local loop will becritical in ensuring a fully competitive telecoms market for the longterm.

LLU MARKET REVIEW

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

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

WHOLESALE BROADBAND ACCESS MARKET REVIEW OUTCOME

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

Ofcom is currently analysing the appropriate retail-minus margin forDataStream operators. Its current expectation is that the current margin(typically around £2.50 against the benchmark BT Home 500 product) willbe increased by £1. The margin rule would be applied by an appropriateformula to the full range of products, including capacity-basedcharging. Ofcom will begin a consultation on its analysis in the week of24th May.

It is likely that DataStream or similar products will continue to playan important role for several years to come. They will also fulfil apurpose in outlying areas beyond metropolitan exchanges in the longerterm. However, Ofcom believes that the need for DataStream may betransitional in those parts of the country in which LLU-basedcompetition emerges. In light of this Ofcom will carry out a furtherearly market review in 2005.

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

INDEPENDENT TELECOMS ADJUDICATOR

Ofcom is also today announcing a proposal to establish a new role,independent of regulator and industry - the Telecoms Adjudicator. Theobjective of the Adjudicator will be to facilitate swift implementationof the processes necessary to enable competitors to gain access to BT'slocal loop on an equivalent basis to that enjoyed by BT's ownbusinesses. In the coming weeks Ofcom will be engaging with the industryto develop the role further.

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

Ofcom Chief Executive Stephen Carter said: "These proposals, combinedwith the recent proposals on migration charges, mark an opportunity toaccelerate the prospects for sustainably competitive investment inBroaderband Britain."

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

GREATER COMPETITION IN VOICE SERVICES

In narrowband voice services, Ofcom is also taking a number of steps toincrease sustainable and effective competition based on infrastructureinvestment.

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

Ofcom believes that this proposal is likely to address the structuralcost disadvantage inherent to the CPS regulations. It will also provideincentives for operators to build out their infrastructure to BT's localexchanges.

In that context, Ofcom welcomes BT's proposal, announced today, to offersuch a product, as well as their undertaking to continue publishingprices for wholesale calls. In light of these announcements by BT,combined with further analysis by Ofcom, Ofcom is not intending to takeforward a wider review of wholesale end-to-end calls as previouslyplanned.

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

BT TOGETHER INVESTIGATION - INTERIM MEASURES

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

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

Office of Communications (Ofcom)

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