MP's broadband report – the choice cuts

Reader's Digest

Yesterday's Parliamentary report into the UK's broadband market supported the assertion of many in the industry that there is no such thing as effective wholesale competition.

But the report by the Trade and Industry Select Committee (TISC) also takes a wider view of the market, benchmarking it against the Government's own expressed aim "to create the most extensive (or widely available) and competitive broadband market in the G7 by 2005".

Although the issue of competition - or the lack of it - was a key finding of the report, there were a number of other areas that were scrutinised.

Here's a selection...

Defining Broadband

When the Consumers' Association (CA) gave its evidence to the committee in November last year it told MPs that UK consumers needed a clear definition of broadband to prevent them from being misled.

The consumer watchdog was concerned that there was "widespread confusion about the term 'broadband'" and argued that different definitions (especially over service speeds) only served to confuse consumers who found it difficult to compare different products and providers.

In its report, the TISC found that there is "disagreement about what actually constitutes broadband".

And in a blow for those operators which insist on calling "midband" services "broadband" the report said: "...the received industry definition, and that which consumers evidently seem to expect from broadband, is always on and 512 kb p/s speeds; though with the increasing availability of 1mb p/s products, this will inevitably be revised."

Competition in the UK Broadband Market

Although there are estimated to be more than 200 ISPs offering broadband to end users, the TISC isn't convinced this necessarily constitutes a competitive market.

"If judged by the number of internet service providers (ISPs) operating in the broadband retail market, the UK can clearly be considered competitive. It is important to note, however, that competition should be judged not only by the number of suppliers, but also by the degree of product differentiation in the market; and in this area, we were told, there is far less choice, as the ISPs are constrained in what they can offer by the limited wholesale market."

It went on: "DataStream [a product that allows rival telcos to use their own networks to provide broadband] has failed to have the competitive impact that had been hoped for. Its failure to do so was attributed to the different regulatory regimes that IPStream and DataStream are subject to, and the potential for BT to exploit this and thus retain customers on its end-to-end product."

"It is our concern that the lack of a sufficient commercial margin will make it impossible for BT's rivals to price competitively against IPStream [BT's wholesale end-to-end product]".

"As yet DataStream has failed to deliver the competition in the wholesale broadband market, and, in turn, in the retail broadband market, that had been hoped of it. There is evidently a demand for DataStream - from our evidence, it is clear that ISPs would like the freedom to purchase wholesale broadband from a range of suppliers and to reduce their reliance on BT. However, they lack the confidence that, under current conditions, it can provide a commercially viable alternative to IPStream. The danger of this is that, because of a lack of confidence rather than a lack of demand, there is insufficient uptake of DataStream and it is ultimately allowed to wither."

Local Loop Unbundling

In the late 1990s LLU was perceived as the future for telecoms competition in the UK, however, its progress has been, "disappointing". Of the 40 or so companies that initially expressed an interest in opening up BT's exchanges, few remain in the market and the percentage of unbundled exchanges is low.

"However, BT has clearly been less than co-operative in the past and an OECD report concluded that it 'has found practical ways to resist policy'. This corroborates NTL's argument that 'BT managed to inject enough delay into the process [of LLU] to prevent entry ahead of its own broadband product launch'.

The committee also heard evidence from a number of potential entrants who said they were put off LLU because of the high cost and uncertainty about future prices.

"Contrary to Oftel's comments that LLU charges are not 'wildly out of line' with those in similar countries, BT, it seems, charges substantially more for allowing its exchanges to be unbundled than other incumbent telecoms companies," said the report.

Break-Up of BT

"We agree that the potential gains from an enforced separation between BT's wholesale and retail activities do not justify the upheaval involved. Such a split might satisfy rival ISPs that they were being treated fairly but a sufficiently robust regulatory system and a successful DataStream product would also achieve this, with less disruption."

Broadband Roll-Out and Take-Up

The report noted that ADSL is now available to 80 per cent of UK households and is predicted to rise to 90 per cent within a year or so.

But this still means that some areas are missing out and, as a result, some people are taking matters into their own hands by setting up community broadband schemes.

But such go-it-alone initiatives don't always get an easy ride.

Said the report: "It was also suggested to us that BT has had a tendency to 'miraculously' reconsider its decision to rule a particular exchange as unviable and has set or lowered trigger levels where these initiatives show signs of being successful. Whilst this ultimately means that the community receives its broadband connection, this behaviour undermines the commercial prospects of companies who are prepared to investigate ways of bringing broadband to more remote communities and, if deliberate by BT, displays a cynical manipulation of the market."

And finally...

"For take-up of broadband to rise in the UK, potential users need to be convinced of the benefits that they can gain from it. This will require a continued increase in the quality of information, services and products that can be accessed via it.

"Content cannot be entirely separated from infrastructure matters and to ensure that this content continues to develop, the speeds that constitute broadband and are widely available will have to steadily improve as well. As yet, it is not clear that the market will deliver this: while companies are developing higher speed products, much of the growth has been in the cheaper, lower speed products.

"However we are not advocating the type of public investment in high speed infrastructure seen elsewhere in the world.

"The Government's role is to facilitate the roll-out of broadband so that it is available to those who can benefit and to make certain that the regulatory framework ensures that commercial decisions by private companies are aligned with the wider economic and social needs of the country." ®

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