Select Committee on Trade and Industry Appendices to the Minutes of Evidence


Memorandum submitted by Alcatel UK Ltd

  We have seen with interest that your committee will be holding an inquiry into OFTEL in the light of the concerns expressed over unbundling of BT's Local Loop. This is a very important issue in meeting the objectives of "Broadband Britain" and avoiding the "Digital Divide". We thought we should write to you, as Alcatel is the world's largest manufacturer and supplier of the Broadband Technology (called ADSL) at the heart of exploiting the unbundled local loop for high speed services. We are supplying around 60 per cent of the equipment in the UK, being installed in BT's exchanges as well as with Kingston Telecoms and NTL.

  In recognising OFTEL's prime objective is to create effective competition, we feel it is necessary to draw your attention to what we believe is the impact of the proposed "Bow Wave Process" (for allocation of access to BT's exchanges) in creating effective competition. We observe from our global experience that the effectiveness of competition decreases when there are too many players, due to a dilution of available resources, (manpower, financial), higher prices due to restricted economies of scale, and market delay or potential failure. The objective of the process for enabling unbundled local loop operators should be the rapid, competitive deployment of infrastructure by players who will commit to a minimum geographic coverage and speed of deployment. Without significant obligations for success many players will follow a limited rollout plan and simply wait to be bought out; from the UK experience in the CATV sector this could take several years. Such a delay in creating effective competition will undermine aspirations for "Broadband Britain" and will most certainly exacerbate the "Digital Divide".

  A variety of technologies do also create opportunity for competition, which bypass the traditional Local Copper Loop. CATV networks already provide this option, and together with the forthcoming auction of spectrum for wideband radio access, and deployment of satellite systems, there are a number of competitive options open. Indeed satellite systems, such as Skybridge led by Alcatel, will provide the same type of broadband access, as delivered by ADSL, to every location in the UK, eradicating the "Digital Divide".

  We have considerable experience of the issues relating to Local Loop Unbundling and creating widespread broadband access. The attached table 1 sets out the state of play elsewhere in the world. In our view the UK is ahead of most of Europe, with effective deployment only being marginally ahead in Germany and perhaps Holland, where the unbundling consultations were launched earlier than in the UK. I also attach for your interest information on moves in USA to avoid the "Digital Divide"[15]. The proposals, by an impressive list of 54 senators, recommended tax incentives for enhancing geographic roll-out. Whilst we would not necessarily recommend the same mechanisms here to stimulate roll-out, encouragement is however needed through minimum objectives being set and by involvement of regional administrations in the UK. The attached map shows our view of the roll-out of ADSL on unbundled copper based on a judgement of acceptable return on investment for operators.

  The precedent in unbundling BT's network infrastructure elements has already been set on the basis of equal access. This was achieved by separating BT's infrastructure business (now called BT Ignite) from its Sales and Marketing business (now called BT Openworld). This wholesale and retail split, delivered through "accounting separation" has worked and this principle should be firmly continued. The outcome of Local Loop Unbundling should seek to encourage growth in retailing applications and services, because that is where the innovation and creativity lies, needed to deliver the UK's government's aspirations for e-commerce. It seems therefore that LLU operators should carry wholesale obligations on a non exclusive basis to all competing suppliers of applications and services, in order to deliver and maximise competitive effect. We believe that obligations on all operators must be coupled with accounting separation and non-exclusivity, so that competition is seen to be fair. It is retail competition, which will drive the services offered via the Local Loop, so the framework should actively encourage new service retail entrants. The number of competitors is going to be much lower in the infrastructure wholesale sector, where the cost of investment is high, than in the service retail sector; healthy competition is needed in both sectors.

9 November 2000

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