Ofcom provokes unbundling battle

The unbundling wars started in earnest in the UK this week, after months of pressure from regulator Ofcom to encourage companies to invest in unbundling the local loop.

And one conversion to unbundled ADSL broadband lines will send a shockwave through the cable TV community, with US quoted NTL throwing of the shackles of being a dyed-in-the-wool cable operator, and stating categorically that all its future cable investment will be in ADSL.

NTL promised to put DSLAMs into 300 of the 1300 or so telephone exchanges owned by British Telecom, spending £65m ($117m) in the process. It will continue to deliver television services, high speed internet and telephony to the homes passed by its digital cable systems, but it will not build out any more infrastructure using that technology. The company says that it is too expensive.

And arch-rival to BT, Cable and Wireless (C&W) has promised that its freshly purchased broadband subsidiary Bulldog Communications will also roll out DSLAMs to 400 exchanges of its own, some 30 per cent of the UK population, with a similar investment. Both companies plan to attack BT in its heartland of wired telephony too, offering Voice over IP services through bundles with entertainment services and broadband internet.

C&W said it would spend up to £100m ($180m) on the plan. It took over Bulldog just a few months ago paying over £18m ($32.4m). Bulldog was only operating around London offering 4 Mbps and fast broadband lines to those close enough to the public switch to achieve this using plain old ADSL, roughly 2 kilometers. C&W also talked about supplying broadband for businesses, and offering television services to residential customers with the aim of creating a £250m ($450m) business within four years.

The trigger for the company to buy Bulldog was the decision made with BT’s agreement by regulator Ofcom, to cut BT’s attachment and lease charges to unbundled players for its last mile lines. The deal was done in a trade off whereby BT was allowed a free hand in pricing IP Stream, is range of very high speed internet lines. It is often these lines that act as backhaul for the broadband lines. Until that decision there really were about 8 unbundlers in the UK and most of them were on the borderline in terms of making any money. This was because of BT dragging it heels to co-operate under previous guidelines and the regulator (before Ofcom) doing little about it.

Ofcom was formed last year out of five previous regulatory bodies, the Broadcasting Standards Commission, Independent Television Commission, the Office of Telecommunications, the Radio Communications Agency and the Radio Authority, plus some other organizations, merged into one.

One of its key focuses has been to stimulate competition in broadband and promote its use. If other regulatory bodies such as the FCC were allowed the same kind of power in the US, then incumbent Telcos the world over would have to accommodate far more competition than they do presently.

The end result has been a drop of 70 per cent (in two steps) to the price of broadband access to the last mile from BT to the unbundlers, which is now in line with the pricing for other European countries. Bulldog announced just a week ago that it was entering the phone business over broadband, pricing a 4 Mbps internet service, plus unlimited telephony at £52 ($93) a month. Bulldog offers various bundles, including one for a home office and some that cap the price of calls to mobile phones.

Although this remains more expensive than the US, it is cheap for a UK bundle at this point in time. But with Bulldog, C&W, PCCW and Homechoice about to all enter the triple play market and with most ISPs expecting to offer VoIP, there is set to be a royal price war for basic UK telephony over the next two to three years.

At the moment Bulldog is offering no IP TV options, but it is sure to be lining up entertainment services, probably from third parties, as incumbent British Telecom is also known to be.

Copyright © 2004, Faultline

Faultline is published by Rethink Research, a London-based publishing and consulting firm. This weekly newsletter is an assessment of the impact of events that have happened each week in the world of digital media. Faultline is where media meets technology. Subscription details here.

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