UK Regulator Slashes Unbundling Rates

Ofcom's ruling spells good news for BT's competitors and for access equipment vendors

December 16, 2004

6 Min Read
UK Regulator Slashes Unbundling Rates

British regulator Office of Communications (Ofcom) has unveiled the new, reduced local loop unbundling charges that BT Group plc (NYSE: BT; London: BTA) must offer to alternative operators, and it's good news for the incumbent's competitors (see UK Regulator Slashes Unbundling Charges).

The prices for all five of BT's wholesale access products, including the unbundling options, have been cut substantially, compared with the rates on offer in May this year.

The shared line charges are at least 70 percent cheaper, while the local loop unbundling (LLU) charges are also significantly reduced, meaning a much lower cost base for operators wanting to manage the copper loop between BT's local exchanges and their customers' premises.

The new rates mean it will be cheaper for ISPs to take a wholesale service, or shared line, from BT and sell it on to consumers, and cheaper for operators to unbundle the local loop and install their own equipment in BT's local exchanges.

That process gives operators the opportunity to cut their costs compared with BT's wholesale rates (if they can achieve the economies of scale), and it gives them greater control over the range of services they can offer, as they're not simply restricted to reselling BT's wholesale offerings.

That, in turn, means good news for access equipment vendors. The cheaper rates will likely encourage more service providers to unbundle the local loop and invest in their own infrastructures.

The table below shows the old prices (those available from BT in May 2004), the current prices on offer from BT, which the incumbent cut as Ofcom undertook its review, and the new final prices that will come into effect on January 1, 2005.

Table 1: UK's New Wholesale Access & LLU Rates

A: Old

B: Current

C: Final

D: % Change from A to C

Shared Access











Fully Unbundled

Connection (transfer)





Connection (new provide)










Ofcom had already proposed new rates in August this year, a move that lit a fire under the U.K.'s moribund unbundling market (see Ofcom Proposes New LLU Rates and C&W Has $150M Broadband Plan). But the final rates announced today are even lower. Ofcom says these further reductions "reflect more recent cost data."

There is, however, one rate yet to be decided, the rental rate for full unbundling, which includes the cost of laying and maintaining the copper connection. Ofcom is still considering how to value BT's copper network, and will make a decision in the spring, until which time the current price of £105.09 (US$205.28) will be maintained.

BT diplomatically welcomed the new, lower rates it will have to implement. "I believe they are right for the industry," said BT Wholesale's CEO Paul Reynolds in a prepared statement (see BT Welcomes LLU Review). BT insists it is committed to helping the regulator foster greater competition, and it's appointed a director of Wholesale Line Rental to ensure that BT matches the expectations of Ofcom and the alternative operators (see BT Names Unbundling Bosses).

Not surprisingly, those alternative service providers welcomed the new unbundling prices.

"This is a sign that Ofcom is keeping a firm grip on the process, something the previous regulator hadn't managed to do," says a spokesman for AOL UK. "It appears that Ofcom is not letting BT dictate the pace, as had happened in the past."

AOL UK has 2.3 million Internet access customers, 600,000 of which are broadband users. The company is currently evaluating its LLU strategy and plans trials next year. "If you're a major ISP in the U.K., local loop unbundling has to be on your agenda," says the spokesman.

And Cable & Wireless plc (NYSE: CWP), which is targeting the broadband sector through its Bulldog Communications Ltd. subsidiary, says the move augurs well for future investments in access technologies.

A C&W spokesman says the main prices affecting Bulldog are the unbundled connection (transfer), where a broadband link is taken over from BT, and the unbundled connection (new provide), which is a freshly activated broadband link. Both are now much lower than before Ofcom's review and will result in "significant changes in one-off payments" for Bulldog, says the spokesman.

The new prices also spell good news for access equipment vendors, as more service providers will likely be enticed into the LLU market and invest in their own infrastructures. Bulldog's ambitious rollout plans have already resulted in lucrative new contracts for Marconi Corp. plc (Nasdaq: MRCIY; London: MONI) and Italian softswitch supplier Italtel SpA (see Marconi, Italtel Score at C&W).

Now, DSLAM and multiservice access equipment firms will be battling for a slew of contracts from other British LLU hopefuls, including NTL Group Ltd. (Nasdaq Europe: NTLI), Thus plc (London: THUS), and Wanadoo SA, as well as AOL UK, whose spokesman notes that any service provider planning to unbundle needs significant capital resources. "It's not cheap. You need tens of millions of pounds to invest."

And it's even possible that BT's own Retail division might invest in its own alternative access infrastructure, though that move is seen as less likely by industry observers since the resignation of the division's outspoken CEO Pierre Danon. He is being replaced by BT's current CFO, Ian Livingston, who is less likely to rock the boat on the BT board (see BT Faces 21st Century Dilemma, BT's Danon Quits for Capgemini, and BT Names New Retail CEO).

The reduced prices are part of Ofcom's plan to introduce greater competition into the U.K.'s broadband sector (see Ofcom Sets Out B'band Plan). The number of unbundled lines has increased from 12,000 in May this year to about 26,000 now, but Ofcom wants that number to hit 1 million by mid-2006.

The possibility of greater competition has also increased with the launch of an alternative wholesale access service from Easynet Ltd., which, along with Bulldog, is one of the pioneers of the U.K. unbundling sector (see Easynet Takes on BT Wholesale).

— Ray Le Maistre, International News Editor, Light Reading

Need to know more about the ways in which service providers are looking to extend multiservice convergence all the way into the access network? Check out the coming Light Reading Live! conference:

Multiservice Access Networks
at the Four Seasons Hotel in Boston, on Thursday, February 24, 2005

This one-day event, hosted by Scott Clavenna, Heavy Reading Chief Analyst, will feature keynotes from some of the current leaders in multiservice access, informative presentations, product demonstrations, and lively panel discussions about all aspects of this new market.

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