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Ofcom hails BT wholesale price cuts

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Ofcom has welcomed BT's plans to cut charges for rival operators to access its network. It says that local loop unbundling (LLU) can deliver competitive broadband markets in the UK.

Today BT said it would slash the cost of LLU by up to 70 per cent in a move that could spark the creation of new and possibly cheaper broadband and telecoms services.

LLU is a process by which the dominant provider's local loops - which connect local homes and businesses to the local exchange - are physically disconnected from its network and connected to another communications provider's network. This enables competing providers partly or wholly to lease a customer's access line and provide voice and/or data services directly to end users over that access line.

BT's announcement coincided with the publication of Ofcom's own market review into LLU in which the regulator will examine why LLU has failed to take off in the UK and ways to rectify this. Following BT's decision to move first, Ofcom will now undertake the review against the backdrop of the telco's planned price cuts and its apparent new-found willingness to co-operate with the industry and regulator.

But it is clear that Ofcom thinks that LLU can stimulate competition in the provision of broadband services - something that will be welcomed by an industry that has consistently fought for greater competition.

Ofcom had already accepted that, prior to today's price cut announcement, the cost of LLU in the UK was simply too high, with charges up to three times more expensive that some European countries. In France, for example, where LLU has rocketed over recent months, the cost of connecting a new unbundled line is £50 along with £14 a year line rental. In the UK, those charges are £117 and £53 respectively.

Some way behind

Said the regulator's consultation document: "While broadband uptake and roll-out has improved significantly in the last two years, there remains limited competition in terms of broadband delivery at the network or wholesale level. Competition based on LLU is one way of delivering competition in the broadband market and is particularly vital in providing competitors with opportunities for innovation and product and price differentiation.

"Ofcom recognises that the UK has fallen some way behind the UK's most successful EU counterparts in relation to both take-up and the level of charges for LLU. In contrast to other EU countries, the UK has only about 11,000 unbundled lines. The current LLU operators in the UK are primarily catering for metropolitan business and high end consumers, for whom system reliability, advanced products and price, relative to leased-line alternatives, are the attractions. In the small business and residential consumer market, there is a general consensus that UK prices are significantly adrift from European best practice."

Ofcom is convinced that LLU has a "significant part to play in establishing competitive broadband markets (and it) is committed to ensuring that appropriate regulation is put in place to provide the most positive environment for the success of LLU".

Ofcom is keen to see costs come down, but it is also eager to see that, on a practical level, that the mass market adoption of LLU can actually happen. There's no point in having low prices in place if BT can't - or won't - handle demand for LLU, especially as BT has been accused of "dragging its feet" and creating obstacles which block and frustrate rivals from opening up the local loop.

This is why Ofcom also wants to ensure that mechanisms are put in place that will enable the quick and efficient adoption of mass-market LLU.

"Ofcom is aware that LLU processes do not appear, in their current state, to be fit for scaling and 'industrialisation' and that this is a major challenge if the UK is not to be left behind in broadband development," the regulator said.

In response to those concerns, Ofcom has today also proposed the creation of a "Telecoms Adjudicator" to ensure that LLU happens without any of the hitches that have delayed progress so far. In effect, the adjudicator will bang heads together if LLU gets bogged down in disputes between BT and the industry. ®

Related stories

BT to slash LLU costs
PCCW launches UK wireless broadband
London to get unbundled video-on-demand
BT mulls cutting LLU charges
Ofcom hints at LLU cost cuts
Freeserve committed to unbundling local loop
UK still LLU laggard - Oftel

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