Damming indictment - BT Interactive's ADSL offering - Company Business and Marketing

CommunicationsWeek International, Nov 15, 1999 by Andrew Gliniecki

More access bandwidth please. It's become a familiar cry from people concerned with shaping our broadband e-commerce future. Witness the howls of protest at the "expensive" and "restricted" 512-kilobit-per-second ADSL offering being posited by BT Interactive. And ultimately they are right. Like incumbents across Europe, BT is desperate not to cannibalize its lucrative leased-line business--the very business the regulators in Brussels have targeted because of high prices.

Wide-scale broadband access is now in sight. But broadband enthusiasts are concerned that they keep seeing those hoped for data rates tumbling down. In the last issue of CWI the UMTS Forum were expressing concern that the method of spectrum allocation being planned by German licensing authorities would not permit the kind of rich multimedia applications that will drive 3G forward.

Now attention has turned to ADSL. In trials, BT Interactive was delivering 2 megabits per second for [pounds]30 per month. The commercial offering has been scaled down to 512 Kbps at [pounds]49.99 per month. The excuses are predictable: Current applications do not warrant high speeds: the state of the copper varies throughout the country so that the data rate chosen has to be deliverable over the lowest common denominator. But in reality there is no reason why different grades of service cannot be devised and customers informed that all grades would not be available in all areas. No one can seriously believe that competitive local access carriers will not drive the speeds up as high as possible where ever possible once the local loop is unbundled.

No, at the bottom of all this is BT's determination not to cannibalize leased-line costs for as long as possible. But it is playing a dangerous game. Leased-line costs have been targeted by the European Commission as a major area of concern. Whereas competition has been effective in bringing down prices in many communications areas, leased-line prices across Europe have remained stubbornly high. Individual national governments will also have something to say. They are beginning to understand that there is a direct relationship between cheap and flexible broadband access and the prospects for e-commerce. The political pressures on a BT perceived to be standing in the way of the spread of e-commerce in the United Kingdom will be immense.

But is not just BT's determination not to compromise its leased-line business that will cause comment. Comparisons with other markets across the world show that BT's retail DSL offering is among the most expensive. The U.K. government--with its self-proclaimed crusade to prioritize the development of e-trade--is not going to like that. But there is one caveat here that no one should lose sight of. Whilst there is little doubt that room exists to trim BT's prices, it would be wrong to create an environment where BT was forced to drop broadband access charges so far that it was hard for potential new entrants in the LMDS space to make out a business case to build out a network. In the long term, alternative infrastructure has a significant role to play. And that applies in every market--not just the United Kingdom.

The leased-line issue, however, could not be more clear cut. The bottom line is that while incumbents have a monopoly, they should not be allowed to protect bloated leased-line prices by restricting DSL services. Where they do, regulators would have every justification to accelerate enforced unbundling.