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Ofcom hints at LLU cost cuts

Elephant in the corner of the room

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The UK may see greater competition in the telecoms sector after Ofcom hinted that the cost of Local Loop Unbundling (LLU) could fall in line with other European countries.

LLU gives rival telecoms operators access to BT's network so they can provide services direct to homes and businesses. It was once hailed as a revolutionary step for the UK's telecoms sector.

However, LLU has failed to make any significant impact in the UK, with only 11,000 lines unbundled. Former telecoms regulator David Edmonds was so disillusioned with LLU that he admitted in 2001 that it had "not been a success" and that the practicalities surrounding opening up BT's network to competition had been a "painful and often miserable process".

He said LLU was one of the "most complex regulatory interventions that Oftel's ever had to do", made worse by BT's reluctance to open up "the last mile" to competition.

Now, it looks like Ofcom is keen to make LLU work - regardless of the difficulties. Speaking today at a briefing of Ofcom's review into the UK's telecoms industry, chief exec Stephen Carter hinted that the regulator would act to make LLU more attractive to rival operators.

Virtuous circle

"In terms of Local Loop Unbundling Ofcom will…publish its first Market Review, for consultation, in the week beginning 10 May. Ofcom cannot, of course, pre-empt what pricing decisions will flow from the review. But it would be surprising if at the end of the process, UK prices were not aligned much more closely with European best practice, where price reductions and growing user volumes form a virtuous circle.

"In terms of provisioning for LLU, the processes are not fit-for-purpose for scale. The processes need to be successfully industrialised. Whilst the right prices are a critical condition for success, the right processes are also a necessary condition."

He went on: "The market is now ready for investment, rationalisation and consolidation. The last three years have been torrid for the telecoms industry both in infrastructure, OEMs, innovation and scale development of new technology applications. But we are either through and/or at the point of visibility of improved operating performance, cash-flow, customer focus and some network rationalisation.

"Now we can look forward with some enthusiasm to the next few years. We have, as we have said, seen some significant progress on retail broadband, but rather more limited wholesale and/or infrastructure competition."

Carter acknowledged that the UK lags behind other European countries where wholesale competition at the Local Loop is much more advanced.

"Germany has over three million unbundled lines (albeit mainly used for narrowband traffic). As a function of much reduced prices France has a LLU market that is growing very rapidly - 40,000 lines each month - and is providing an increasingly broad, innovative and higher bandwidth range of products and services."

Italy and Spain are also attracting inward investment, yet the UK has only about 11,000 unbundled lines used primarily by high-end users.

Elephant in the corner of the room

No doubt this rejuvenation in interest in LLU will be warmly welcomed by Wanadoo UK (formerly Freeserve), which is keen to press ahead with LLU. Yesterday, it reaffirmed its position that it wants to see the cost of unbundling come down in line with other European countries.

In its evidence to a recent parliamentary committee examining broadband, Freeserve said it was prepared to put its full weight - and the financial muscle of its parent, Wanadoo - behind LLU in a bid to sever the ISP's reliance on BT for broadband.

Elsewhere, Carter urged the industry not to concentrate just on the possible break-up of BT as the regulator carries out its review of the industry.

One of the key questions published in today's review of the UK's telecoms industry is: "Are structural or operational separation of BT or the delivery of full functional equivalence still relevant questions?"

Carter said: "Note the phrasing of that last question and that it comes last. That is deliberate. Since 1984 that question has been the elephant in the corner of the room. And if there is an elephant in the corner, we think it better to acknowledge that fact rather than try to pretend it does not exist.

"But on this question Ofcom is genuinely agnostic. And we strongly hope that it will not be the focus of everyone's input to the Review. As we all know, today's telecommunications market is many layered and complex and is unlikely to become less so in the coming years.

"Indeed, some of the forces we identify in the Report could make the market more competitive. So we should be cautious in reaching for any single, magic-bullet solutions". ®

Related stories

Ofcom confirms BT break-up review
Freeserve morphs into Wanadoo
Freeserve committed to unbundling local loop
Easynet to unbundle 80 exchanges in '04
UK still LLU laggard -Oftel
Oftel's Edmonds says LLU has not been a success

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