U.K. WHOLESALE BROADBAND MARKET FOUND UNCOMPETITIVE
A U.K. parliamentary panel Tues. strongly criticized the lack of competition in the country’s broadband market, but stopped short of calling for a forced split of British Telecom’s (BT) wholesale and retail functions. Despite a govt. push to create the G7’s most widely available and competitive market by 2005, key players on the wholesale side fear they can’t provide sustainable alternatives to the incumbent’s services, the Commons Trade & Industry Select Committee said. It considered -- but discarded -- recommending a universal service obligation (USO) to ensure broadband access in every household.
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Judging by the number of retail ISPs, the U.K. clearly is competitive, the panel said. However, it said, it’s not just the number of suppliers but the degree of product differentiation that evidences competition. Here, testimony showed, the limited wholesale market constrained ISPs from offering new products. The mass broadband market is limited to ADSL via BT’s telephony infrastructure, and cable, the committee said.
BT grants access to new entrants through the sale of 2 packages, IPStream (an end-to-end product) and DataStream (which lets operators transfer BT broadband traffic to their own networks). BT at first offered only IPStream, but regulators required DataStream in order to spur competition, the report said, but so far DataStream had “failed to have the competitive impact that had been hoped for.” That failure was attributed to the different regulatory schemes for the 2 products and the “potential for BT to exploit this and thus retain customers on its end-to-end product.”
BT has much greater freedom in setting IPStream’s price, the report said. Uncertainty about the 2 products has “created anxiety about [their] relative costs… which has led ISPs to be wary about committing themselves to DataStream.” Potential players worry BT in might cut the price for IPStream substantially, making DataStream even more costly, the report said. The panel noted the Office of Communications (OFCOM), the U.K.’s new regulator, had announced a wide-ranging review of the broadband market, saying “it is vital that this matter is resolved.”
The only significant alternative to DataStream now is local loop unbundling (LLU), the committee said. But progress with LLU has been disappointing since the idea was floated by OFCOM’s predecessor in 1998, it said.
BT “claims to have a system of ‘Chinese walls'” separating its retail and wholesale arms to ensure that the former doesn’t get an unfair advantage from the latter, the report said. However, it said, given OFTEL’s (OFCOM’s predecessor) admission that BT’s behavior hadn’t been entirely transparent, it considered whether ordering the incumbent to separate into different companies would help competition and broadband uptake. But lawmakers agreed the potential gains from a breakup wouldn’t “justify the upheaval involved.”
Despite the high profile given to broadband, the govt. has left it to BT and the regulator to achieve its goals, lawmakers said, so there’s little competition in most of the country. At some point, areas where broadband remains unavailable will risk becoming marginalized and the digital divide will become a threat, it said.
The committee urged the govt. to promote broadband use by informing businesses and individuals of benefits, improving its online services and developing interactive Web sites. However, it said, “we are not advocating the type of public investment in high-speed infrastructure seen elsewhere in the world.”
Industry groups said the report bore out their concerns about the country’s broadband market. U.K. Competitive Telecoms Assn. (UKCTA) Chmn. David McConnell called it a welcome recognition by members of Parliament (MPs) that the “key area is the wholesale market.” It’s significant, he told us, that MPs repeatedly referred to lack of confidence among would-be market players. Entrants want to move beyond early adopters with low speeds to a mass broadband market with faster speeds, McConnell said.
Asked whether the report left out anything of concern to UKCTA members, McConnell said his group had raised the issue of the rising costs of building networks. The govt. is introducing several new proposals -- including the Traffic Management Bill that telcos contend will raise the cost of building infrastructure -- he said.
The report “sets out some plain truths about the broadband market,” the Broadcast Industry Group (BIG) said. It confirms “the current regime has not delivered, and competition in the wholesale broadband market does not yet exist,” the group said. OFCOM has a chance to level the playing field to make real competition possible, BIG said.
BT didn’t responded to a request for comment. The Consumers’ Assn. and the Broadband Stakeholders Group (a govt. advisory panel) were reviewing the document. The report goes to the Dept. of Trade & Industry, which must respond formally to its recommendations.