Ofcom Gets The Nod To Deregulate Most U.K. Broadband

Telecom Policy Report, Feb 25, 2008

The European Commission (EC) has agreed to allow U.K. regulator Ofcom to deregulate wholesale broadband serving almost 65 percent of all of Britain's businesses and homes, saying that enough competition exists to scrap the European Union (EU) rules.

EU Telecoms Commissioner Viviane Reding told a hearing in the European Parliament the EC had agreed to an Ofcom proposal, strongly urged by BT, which it appears can now raise rates to whatever it thinks the market and competition will bear. The trick, she said, was that Ofcom has sliced the U.K. up into separate market areas, proposing to deregulate only in those areas where there was adequate competition - defined as four or more competitors offering wholesale broadband.

Both Reding and EC Competition Commissioner Neelie Kroes said the decision to deregulate the majority of the U.K.'s wholesale broadband market could serve as an example for other European countries to follow. Ofcom, they noted, "is the first national telecoms regulator in the EU that has proposed to define sub-national geographic markets for wholesale broadband access in order to de-regulate the provision of wholesale broadband access" in areas where there is significant competition.

Clear Guidance

"Ofcom's finding of effective competition in a substantial part of the U.K. broadband market shows that the more effective a national telecoms watchdog regulates, the faster can be the move to competition law, inbuilt in the EU's telecoms rules," said Reding. "I therefore welcome the precedent set by Ofcom's proposal to define sub-national geographic markets. The proposal at the same time has enabled the Commission to provide clear guidance and policy principles for all national regulators in this important area. This should now be a solid basis for a coherent European regulatory approach to regional markets and give the required legal certainty to the market."

Added Kroes, "In the more densely populated areas of the U.K., consumers have the choice between different broadband suppliers which have rolled out their own infrastructure. For many of these areas ex ante regulation is no longer warranted. However, at this crucial phase of broadband development across Europe, it is also important to ensure consistency across member states. Both over-regulation and under-regulation could stifle investment and lead to higher costs for households and businesses. Any deregulation of subnational markets should therefore be based on competition law principles."

The EC, in its ruling, founded that 64.4 percent of the U.K. is served by local exchange areas with 4 or more wholesale providers, or the expectation there will be that many, and at least 10,000 served by an exchange. Those are the only areas Ofcom now can deregulate. In 19.2 percent of these markets, BT remains the only provider, it found, while in 0.7 percent Kingston Communications is the only operator (a single locale, called Hull). In a final 15.7 percent, the exchange serves fewer than 10,000 premises and thus, even though there may be 4 providers, they still will be regulated.

New Findings

The findings by Ofcom, endorsed by the EC, are startlingly different than those reported by the regulatory agency less than half a decade ago. In a survey conducted in 2003/04, Ofcom had found the wholesale broadband market was "relatively homogenous nationwide," which is really a euphemism for saying BT had a broadband stranglehold on the country.

In a statement of its own, Ofcom last week said it "welcomed" the EC action and is beginning an immediate review of various proposals and comments that had been about its deregulation plans. The regulator, after determining there now is significant competition in large parts of the country, in November 2007 issued a "consultation document" setting out its thoughts about deregulation. The period for comments on that document closed Feb. 14, and Ofcom now says a statement with final proposals will be forwarded sometime this spring.

One caveat: If BT were to peremptorily raise its wholesale broadband rates after being deregulated - something it hasn't indicated it's going to do - customers would have ample time to run to one of the other competitors. That's because "a 12-months notice period will be applied to allow any affected parties to make alternative arrangements," Ofcom carefully specified in its deregulation proposal.

As to just how important economically the wholesale broadband is to the carrier,

BT had 12.2 million wholesale broadband connections as of Dec. 31, 2007, of which 3.7 million of them were local loop unbundled lines (LLU) over which competitors deliver their own services. The rest carried BT's own broadband to businesses and homes. BT's vaunted 21CN next generation network (NGN), meanwhile, is supposed to include a service called "Wholesale Broadband Connect" (WBC), due to launch this spring and offering as much as 24 Mb/s of service to all its wholesale customers using ADSL2 technology.