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


Memorandum submitted by OFTEL

  1.  This memorandum deals with progress in the UK towards enabling the competitors of BT to take control of individual BT exchange lines for the purpose of offering their own services to the subscribers for those lines ("local loop unbundling"). It supplements the oral evidence given by the Director General and his colleagues during their appearance before the Committee on 14 November. As the memorandum illustrates, the approach of OFTEL since 1998 has been strongly pro-active, and is bringing about unbundling on as fast a timescale as is possible in the context of the UK.


  2.  When the current Director General took up office in April 1998, OFTEL policy was that local loop unbundling would be, at best, a distraction from the task of achieving effective competition for subscribers between different communications networks. At the time, and for some time afterwards, few European regulators were pursuing unbundling as a live issue. By way of exception, Germany had already required its incumbent to unbundle. Its motivation was to increase competition in traditional telephony. But in the UK, unbundling for such a purpose made little economic sense. Suppliers of telephony were already able to compete with BT using "indirect access" services and availability of unbundling would have had negligible effect on competition in telephony.

  3.  It became apparent that unbundling could have an important part to play in ensuring effective competition in supply of higher bandwidth services such as high-speed data transfer, fast internet access and video services. However, imposition of an obligation to unbundle could not be taken lightly. It represents a greater intrusion into the business of the incumbent than had been previously undertaken. It could also, unless implemented appropriately, affect the development of competing local access networks such as cable. Moreover, it is extremely operationally and technically complex and the lessons from other countries were few and not wholly relevant. Accordingly, full consultation was appropriate. By July 1999, OFTEL had concluded that unbundling was necessary in the consumer's interest and BT should be obliged to provide it. It presented that proposal for consultation and, in the meantime, established industry groups to take forward technical and operational issues. A policy Statement was issued in November 1999 confirming that policy, and setting out a provisional timescale.

  4.  Even so, there was no clear statutory obligation (either from national or European law) on BT to offer unbundling in accordance with OFTEL policy. OFTEL therefore pursued the established route, set out in the Telecommunications Act, of seeking agreement from BT to an amendment to its Telecommunications Act licence, formalising such obligations. If BT had refused its consent, OFTEL would have referred the matter to the Competition Commission for a ruling that the obligations were in the public interest. That process would have taken around a year, if not longer. However, BT agreed in April 2000 and the appropriate obligations were inserted as Condition 83 of the BT licence, following the necessary period of statutory consultation.


  5.  In the meantime, the European Commission had made a Recommendation that incumbents should be required to offer unbundling. This was of no practical value in the UK or in most other EU states as Recommendations are not legally binding and so it did not create a legal basis for regulatory intervention. Accordingly, European regulators collectively made representations to the European Commission that it should bring forward on the fastest possible timescale a legal instrument creating a harmonised basis for compulsory unbundling throughout the EU. OFTEL was prominent in these discussions.

  6.  In due course, the European Commission represented a draft Regulation for approval by Council of Ministers and European Parliament. This was adopted on 5 December and will come into force on 31 December. (The immediate obligation imposed by the Regulation is to offer unbundling on terms consistent with the Regulation. This allows for services to be delivered in a timely manner after an order is placed. It is not the case, as has sometimes been reported in the press, that the Regulation requires unbundled loops to be available on 1 January 2001.)

  7.  The obligations for fully unbundled loops imposed by the Regulation are not materially different from the obligations under Condition 83. This is of some significance as it illustrates that the obligations negotiated by OFTEL in April 2000 are in no way soft on BT. (The Regulation deals additionally with two further topics—"line-sharing" and sub-loop unbundling. OFTEL has consulted on the former and will issue a policy statement very shortly. The latter is barely relevant to the UK network at present but OFTEL expects to consult early in the New Year.)

  8.  Notwithstanding the near-coincidence of obligations relating to full unbundling, the Regulation nevertheless will assist OFTEL in ensuring that BT complies fully with those obligations in a timely manner. Enforcement powers available under the Telecommunications Act are rather cumbersome and laborious. In addition, under the Regulation, aggrieved parties have a right of action against BT in the courts for non-compliance with its obligations.


  9.  After April, OFTEL turned its attention more and more from the policy to the details of implementation, as illustrated by the constant stream of OFTEL publications from April onwards (summarised at Annex A[37]). A number of the technical and operational details were resolved satisfactorily in the industry groups which OFTEL had set up. However, by summer 2000, several issues had emerged where it was clear that BT and the industry would not reach agreement. Moreover, there were other issues where the competitors had different and apparently irreconcilable viewpoints. These related in particular to the management of a "bow-wave" of demand at the beginning of the process. All agreed that, where resources could not reasonably be made available in sufficient magnitude to deal immediately with all the initial demand, all operators should benefit from a fair share of the resources available. However, that was the extent of the agreement. It was an issue of great significance since the "bow-wave" is expected to persist well into 2001, despite plans by BT to deploy well over 3,000 staff in planning and building co-location facilities and providing unbundled loops at sites where co-location was available.

  10.  Accordingly, in September, with the agreement of the interested parties, OFTEL took over chairmanship of the main Focus Group, bringing together all interested parties. At that time, various complaints alleging non-compliance by BT with its obligations were submitted. A considerable amount of progress on the most difficult issues has subsequently been made, as illustrated in Annex A. For example, OFTEL has published a draft determination on loop rental prices; it has published a draft determination of the basis of the contract offered by BT for supply of unbundled loops; and it has determined the rules for allocation of co-location space in exchanges where there is greater demand than can be fitted into the space available. Senior OFTEL staff have inspected a number of BT exchange sites and guidelines on the criteria to be used by the Director General in assessing how much space is available for co-location (in the event of a dispute) will be issued shortly.

  11.  OFTEL expects that it will need to continue in this "hands-on" role for several months yet and subsequently monitor market developments carefully.


  12.  Annex B summarises the original timetable proposed by OFTEL and the improvements made subsequently. OFTEL is optimistic about future progress. The technical details have been mostly worked out and the operational processes largely in place. BT is now devoting increasing amounts of resource to surveying and planning work for provision of co-location at its exchanges and has developed plans and earmarked resources for handover of loops. Improvements in the provisional timetable have been secured. The European Regulation provides better compliance incentives than the Telecommunications Act.

  13.  OFTEL believes that BT is in a position to comply fully with its obligations under national and European law. OFTEL will of course continue to monitor progress closely. At present, OFTEL continues to press for further improvements to timescales. It expects BT to introduce efficiency improvements into its planning and building processes and is investigating whether BT is devoting sufficient resources to the programme.

  14.  Nevertheless, if BT adheres to its public commitment to preparation of co-location facilities, expressed on (10 November), and to its other obligations the UK will by mid-2001 be ahead of almost all of Europe in unbundling. Germany, with a three-year head start (arising from different policy considerations) will be some way ahead. Nevertheless, OFTEL expects that the UK will be catching up fast, while maintaining its lead over other states.

8 December 2000

Annex B


Timetable set out in November 1999 Statement
January 2001BT takes orders for co-location.
June 2001BT delivers co-location.
June 2001Completion of Operational Support Systems (OSS).
July 2001Widespread automated provision of unbundled loops.

Timetable as revised in April 2000
1 September 2001BT takes orders for co-location.
April 2001Complete Operational Support Systems (OSS).
April-June 2001Trials using OSS.
June 2001Delivery of co-location.
July 2001Widespread automated provision of unbundled loops.

Latest expectations of timetable on the basis of BT commitments (not yet accepted by OFTEL as sufficient to meet BT's obligations)
12 September 2000BT takes orders for co-location.
December 2000First (trial) co-location facilities handed over to operators.
Early 2001Additional co-location facilities handed over. BT committed, subject to suitable orders, to make available co-location at 600 exchanges (physical co-location at 190) by 1 July. Loops made available within five days of order at all "handed-over" exchanges using manual processes.
Mid-2001Completion of Operational Support Systems (OSS) providing automated support for loop ordering, fault reporting etc, allowing widespread automated provision of unbundled loops.
From mid-2001Physical co-location at additional exchanges, subject to suitable orders, at the rate of around 100 per month.

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