This document is a consultation on our analysis of the state of competition in the Wholesale Local Access ("WLA") market, and the measures that we are proposing to address concerns over the degree of competition in that market.
These proposals matter for consumers because ultimately they will affect the price, choice and availability of critically important retail services, such as current broadband and traditional voice services. However, the WLA market directly concerns services provided between different communications providers ("CPs"). Our proposals also matter because they are intended to promote competition and investment in new super-fast' broadband networks, in the important early stages of development for such networks.
The WLA market concerns fixed telecommunications infrastructure - the physical connection between a consumer's premises and the local telephone exchange. This connection is needed to support fixed line services such as voice calls and broadband internet access. The cost of this connection therefore affects the prices that consumers pay for those services. Also, if this connection fails then consumers' services will fail. The WLA market is therefore critical to all fixed line services.
In reviewing this market we are seeking to establish whether there is sufficient competition in the supply of fixed telecommunications connections. Our ultimate goal in this market review is to protect consumers' interests by using regulation to promote competition and choice in the delivery of fixed line telecommunications services. This will help to ensure that consumers do not have to pay excessive prices for those services, and that they benefit from innovation and investment.
Following discussion with BT, we consider it would be helpful to clarify the meaning of paragraphs 5.58 and 5.79 of the WLA statement. Paragraph 5.58 states:
"We said in the consultation document that were we to impose a basis of charges condition on BT, our view would be that the interpretation of the basis of charges obligation would be that BT's prices must, as a first order test, be between DLRIC and DSAC, BT would be required to adjust its prices to comply with the obligation if its current pricing was outside this range. As such, BT's prices would be constrained based on the costs it incurred. The same logic would apply to any such conditions on KCOM. "
Paragraph 5.79 then says:
"Following our review of stakeholders responses, we maintain the position set out in the consultation document. Therefore, on the basis of the analysis outlined above, we remain of the view that the conditions on the basis of charges are appropriate."
In relation to these two paragraphs commenting on the cost orientation obligation imposed in the WLA market, we would like to clarify that, as stated in paragraph 5.58, pricing between DSAC and DLRIC is a first order test for cost orientation, and is therefore not determinative. As a consequence, there is no automatic requirement for BT to bring prices inside the DLRIC-DSAC range. Whether or not BT would be required to do so in any particular case would also depend on the results of a second order evaluation of other relevant factors. This interpretation of cost orientation in the WLA market is in accordance with the guidance on cost orientation set out in Oftel's 2001 network charge control guidelines.
Overview
1.1 Broadband is increasingly central to the lives of UK consumers and the success of businesses. It allows consumers to access and interact with a wide range of content and services and allows businesses to exploit new market opportunities and more efficient operating models. Competition has driven the success of the current generation of broadband services. This has been shaped by regulation and the availability of local loop unbundling, which has allowed communications providers to compete using regulated, wholesale inputs from BT. The result has been greater choice, innovation, lower prices and high levels of broadband adoption.
1.2 The increase in the number of consumers using their broadband connections for activities such as downloading or streaming videos and music is, however, beginning to test the limits of current broadband networks. Equally, businesses and service providers are looking to deliver a wider range of content, applications and services over broadband. Super-fast broadband will have a key role in addressing these requirements and thereby delivering significant benefits to UK consumers and businesses.
1.3 One of the main challenges facing Ofcom is to adapt the existing regulatory framework to reflect the emergence of super-fast broadband. Over the past two years commercial investments in next generation access ("NGA") networks have resulted in super-fast broadband being made available to nearly half of all UK households. However, competition in the provision of super-fast broadband services remains in its infancy. To support the future development of the market, it is essential that there should be a clear regulatory framework designed both to promote competition and to support continued investment and innovation.
1.4 This document sets out the conclusions of our review of the UK market for Wholesale Local Access ("WLA") and is intended to establish such a framework. We have found that BT continues to have significant market power ("SMP") in the UK market for WLA services , and concluded that access to BT's local access network remains critical for those companies seeking to compete in the delivery of downstream services such as broadband and traditional voice services. On the basis of that finding, we have imposed a number of regulatory obligations on BT, designed to support investment and competition in super-fast broadband, as well as in current generation services.
1.5 The new regulatory model rests on the following core elements:
Virtual Unbundled Local Access ("VULA"), which will allow competitors to deliver services over BT's new NGA network, with a degree of control that is similar to that achieved when taking over the physical line to the customer;
Physical Infrastructure Access ("PIA"), which will allow competitors to deploy their own NGA infrastructure between the customer and the local exchange, using BT's duct and pole infrastructure, to provide broadband and telephony; and
Local Loop Unbundling ("LLU") which we expect will continue to provide a basis for competition in current generation services, allowing competitors to physically take over (or share) BT's copper lines between the customer and the local exchange.
1.6 We expect the new regulatory remedies (VULA and PIA) to be used in different circumstances: VULA is likely to be the most attractive for communications providers ("CPs") where BT has already upgraded its local access network; PIA will be attractive to companies wishing to address market opportunities in advance of BT and may also be of particular interest to companies wishing to provide service in locations which may be in receipt of public funding support.
1.7 These remedies will be complemented by other measures such as Sub-loop Unbundling ("SLU"), charge controls for LLU but greater freedom for BT in the pricing of VULA services designed to promote competition, protect customers and also balance the incentives for companies facing what remain risky investments.
1.8 Finally, we have extended the remit of the Office of the Telecommunications Adjudicator ("OTA") to include both of the new remedies, VULA and PIA. The OTA's contribution proved particularly important in facilitating the emergence of competition in current generation broadband and we anticipate that it will play an equally important role in respect of super-fast broadband.
1.9 We consider that the decisions we are taking today, and the regulatory products that will be available to BT's competitors as a result, are consistent with the Government's approach to encouraging the roll-out of next generation broadband. PIA and SLU have the potential to be used to extend the reach of super-fast broadband, potentially in combination with public funding at a UK or EU level. This would support the Government's aim to introduce superfast broadband in remote areas at the same time as in more densely populated areas.
1.10 The Government is currently consulting on the implementation of the new EU telecommunications framework, which amongst other things will give Ofcom additional powers to encourage the sharing of telecommunications infrastructure. The Government is also consulting on the scope for infrastructure-sharing by non-telecommunications utilities (e.g., sewage, gas and electricity). We believe the introduction of the PIA remedy will complement any initiatives that flow from these developments.
Review of the wholesale local access market - Statement (PDF, 1.2 MB)
