Select Committee on Trade and Industry Minutes of Evidence



  This memorandum has been prepared by Energis to input to the Trade and Industry Select Committee's preparations for the committee on 14 November 2000. It addresses the issue of the development of local loop unbundling in the UK and the impact and harm on consumers and the industry resulting from the delay in unbundling.


  Energis has had sight of the COLT memorandum of 6 November, outlining the current situation on unbundling and agrees with the points made.

  We would only add the fact that Energis has not yet received confirmation from BT as to when the site allocated to us for trailing co-location, in Leeds, will be available for use. It is expected that this date will not be until the end of January. In addition, the costs concerned with developing the site for co-location have increased significantly.


  The underlying premise of the policy of liberalisation in the UK since 1991 and now in the EU is that effective competition delivers greater benefits to customers than a single supplier or highly concentrated market. The liberalisation experience has shown that customers do not gain substantially until competition becomes a reality, in terms of lower prices, quality of service or innovation. In the UK, this has been observed at different phases. The ending of the duopoly of fixed telephony network services in 1991 had a significant impact on growth and innovation in the UK. The introduction of competition forced BT to reduce its retail prices to face new entrants' competitive strategy of low prices. Similar effects were observed following the introduction of international resale and facilities-based competition later on. The arrival of Orange in the mobile market is another concrete example on how the introduction of competition has generated benefits for the end consumer.

  There is no reason why the introduction of competition in the provision of high bandwidth services should not, in the same vein, produce substantial gains for UK consumers. And Oftel's objective for local loop unbundling, as defined in its 2000-01 Management Plan, is "To promote competition in the means of delivery of high bandwidth services to customers". Furthermore, in its statement, "Access to bandwidth: delivering competition for the information age", Oftel expects that increasing competition on the local loops will facilitate high bandwidth market development:

    " . . . in particular, Oftel expects that, with the expansion of the market, alternative technologies such as cable modems, third generation mobile, broadband fixed radio, and access through digital TV will become more widespread and available to a large proportion of the population."

  A delay in the implementation of an effective competition framework in an underlying market such as local loop access would therefore delay high bandwidth services development and, as a result, cause irrevocable damage to the prospects of delivering the benefits of advanced technology services to residential customers.


  BT has currently launched a commercially available DSL service (Openworld) at 516 sites. These sites include exchanges, which have been blacklisted for operators, pending the allocation process, which gives BT a head start over competitors such as Energis in providing DSL services. This situation will cause economic harm to operators for two main reasons. First, operators will be put under pressure by existing customers to decrease prices by utilising xDSL, which they will be unable to provide. Second, it will put operators in a much weaker position to serve residential and business markets, once access is gained to BT's exchanges. Customers who sign up to BT Openworld are tied into one-year contracts. In addition, persuading a BT Openworld customer to switch to a similar broadband service will be significantly harder than getting a customer to sign up for the first time to being a broadband customer. Both existing and future business will therefore be harmed.

  Most operators will not plan to provide DSL at every MDF site, but rather to deploy DSL at those sites, which best serve, its target customers. Operators need to understand the totality of the sites at which they are to be allocated space so that they can effectively plan operational rollout of DSL. Initially, operators are likely to focus on specific geographical areas for operational and marketing reasons. They therefore cannot make a decision on a per site basis, until they are informed that space is available for them in a particular location.

  Currently, operators do not know which sites, at which they have requested space, will be available to them. Rather, they will be informed in a series of tranches. If this was not bad enough, the initial allocation process has determined the allocation of space to operators for which those sites for there was the lowest level of demand. The result of the current allocation process is that it is impossible for operators to formulate a coherent business plan and operational rollout at this time, the consequence of which will be a delay of probably many months to their DSL programmes.

  In contrast, BT has knowledge of the sites where DSL can be rolled out. Further, it appears from the way that BT is deploying DSL at sites blacklisted to other operators that the criteria restricting space being allocated to BT Ignite are considerably less onerous than is being applied to other operators. The overall result is that whereas BT is moving ahead with its DSL rollout, the space allocation process is effectively stalling other operators' DSL rollouts, which gives BT a tremendous advantage in terms of time to market.

  Finally, most operators derive a proportion of revenues from providing corporate network services (such as Frame Relay and ATM), with customers connected to their networks by BT local tail circuits. Since DSL will provide a cheaper means of access for customers for these services than other comparable access technologies (including local tail circuits), there is a real danger that to reduce costs customers will migrate from operators to BT for the provision of their entire corporate network service. Alternatively, these customers will exert pressure on operators to reduce prices to match the savings that they could potentially obtain by moving to BT. BT has already approached customers of other operators with pricing offers, which include provisioning using xDSL rather than Leased Lines. Operators are not in a position to respond with an equivalent offer based on DSL access unlike BT Ignite who will be able to rollout services from any local exchange.

8 November 2000

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