MEMORANDUM SUBMITTED BY ENERGIS COMMUNICATIONS
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.
2. CURRENT SITUATION
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.
3. HARM TO
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
4. HARM TO
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
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