Ofcom asks BT to open NGA infrastructure to competitors

On 23 March 2010, Ofcom released two consultations following the review of the wholesale broadband access (WBA) and wholesale local access (WLA) markets. Ofcom proposes two new remedies: virtual unbundled access (VUA) to BT’s FTTC and FTTP NGA infrastructure, and physical infrastructure access (PIA) to open up BT’s ducts and poles to alternative operators. Ofcom’s proposals should be seen as complementary to the government’s recent reiteration to provide next-generation broadband to unprofitable areas. The consultations will run until June 2010 with final regulatory statements expected in late 2010.

 

Up until now, Ofcom has held the view that competition based on active products (bitstream) would see the UK switch to a high fibre diet. However, it is now considering the option that those who wish to invest deeper in the network be given the option to do so. The requirement would be for BT to grant cost-based access to its underground duct and overhead telegraph poles so that competitors could deploy their own networks based on either FTTP or FTTC. Duct access should be seen as an important remedy in the regulatory toolbox, and is already widely used in Portugal, France, Germany, and Spain. However, it is not a remedy that will be effective everywhere and in all cases.

 

Surveys conducted during the past two years suggest that some parts of BT’s network have the space to handle 50% more cabling, but the overall state of the duct network is patchy at best. Where it is of good quality, alternative operators will be able to roll out their own fiber access networks without much additional expense. According to the proposals, BT would be required to produce a draft reference offer for duct access within three months, with a view to launching a product within eight months after the final statement is published. However, prior to the Ofcom publication, BT had already announced that it was willing to provide access to ducts, but requested that competitors’ (namely Virgin Media) ducts be opened in a similar way. Virgin Media has so far escaped from the proposed measures on the basis that it does not have SMP in the defined markets, but political intervention and the not-yet-final Recommendation from the European Commission could change this.

 

In most European countries, the deployment of fibre (particularly by incumbents) is already a reality. Therefore, how to promote and maintain competition early on is a big challenge for NRAs. For Ofcom, the answer is the obligation of virtual unbundled local access (VULA) wherever BT has deployed its NGA network. VULA is a way for BT to provide access to its NGA network that is similar to the LLU regulatory measure on current copper networks. BT will determine the price of VULA (in the same way as for active line access), as Ofcom considers that regulating at this stage could stifle investment.

 

In the meantime, Ofcom considers that it is important to maintain effective regulation for current broadband access networks. In the WBA market, Ofcom has imposed different regulatory remedies to different geographical markets as a way of better targeting regulatory intervention. There is little change here, with the exception that in Market 1 (defined as those areas covered by exchanges where BT is the only operator) Ofcom is considering imposing a cost-based charge control on BT. This approach is increasingly being used by other NRAs.

 

As a result of this market review and the previous regulatory statement, setting out the obligations for active line access is on the horizon. The set of access products available to service providers will provide a clear route up the ladder of investment.

 

Initially, Ofcom introduced a flexible approach to regulating NGA by only imposing an obligation for active line access – the pricing of which was left open, thereby encouraging BT to invest, and competitors to experiment competing on this basis. The two latest remedies allow alternative operators to move a rung up from active to passive products. When the alternative operators climb up, they increase the proportion of their own infrastructure and therefore compete on the basis of infrastructure competition. Effective and sustainable competition based on infrastructure is important as it gives rise to the benefits of low prices and more innovation.