OFCOM SETS OUT LONG-TERM APPROACH TO
FURTHER DEVELOPMENT OF BROADBAND

In a series of presentations at its first investment analyst conference, Ofcom has given an outline of its next steps and longer-term aspirations for the further development of broadband in the UK.

Historically the broadband debate in the UK has focused on rollout and coverage, with aspirations first defined four years ago - of services at up to 512kps being made available and taken up by around 15% of UK households.

That focus has delivered important benefits; by the end of 2005 the UK will have one of most extensive broadband-enabled networks in Europe. However, as wholesale costs are reduced and new technologies emerge, Ofcom believes it is now appropriate to focus on the second generation of broadband services likely to emerge as competition increases between providers.

THE ROLE OF LOCAL LOOP UNBUNDLING

Ofcom believes that Local Loop Unbundling - the process which allows network operators to compete in offering a range of innovative broadband media and telephony services between the local telephone exchange and the customer's premises - could play an important role in delivering second-generation broadband services over the rest of the decade.

If there is sufficient progress in reducing costs and improving operational processes, local loop unbundling in the UK has the potential to deliver the same kind of growth and innovation emerging in, for example, France and Japan, where tens of thousands of local loops are unbundled each month.

Ofcom believes that greater competition in access networks can drive widespread adoption of Voice over Broadband (VoB) services within the next 3-5 years. By the end of the decade, the successful introduction of greater infrastructure competition, combined with continued innovation in access technologies, could enable a majority of UK households to
benefit from affordable and accessible broaderband connections delivering video-quality bandwidth.

LOCAL LOOP UNBUNDLING - PRICE AND PROCESS

Initial attempts at local loop unbundling in 1999-2001 were unsuccessful, weighed down by both price and operational process issues. With this in mind, Ofcom has begun a market review of local loop unbundling to establish a new approach which offers both economically sustainable pricing as well as industrialised processes designed to cope with large numbers of customers.

In May 2004 BT announced a 70% reduction in its charges to other operators for access to unbundled local loops.
This change in pricing will provide a greater stimulus to infrastructure competition over time.

However network operators also identified a range of day-to-day operational issues which, when taken together, have the potential to add both delay and cost to the unbundling process.

Ofcom believes that to pursue formal and direct regulatory intervention in response to each complaint about operational matters would be disproportionate and, as a likely cause of greater delay, ultimately ineffective.

Instead Ofcom has proposed the establishment of a Telecommunications Adjudicator, independent of the regulator, BT and other network operators and able to bring all parties together to find a prompt mediated resolution of working-level implementation disputes.

The Adjudicator will also work with the industry to help develop new local loop unbundling products and processes which are fit-for-purpose and industrialised to cope with large volumes over time.

APPOINTMENT OF THE INDEPENDENT TELECOMMUNICATIONS ADJUDICATOR

Ofcom today announced the appointment of Peter Black as the independent Telecoms Adjudicator. Peter Black is an experienced telecoms operational executive who has held senior executive posts with BT, Thus and ntl.
The appointment, which is with effect from 5 July, was made by a selection panel led by a Non-Executive Board Director, Millie Banerjee.

INDUSTRY SUPPORT FOR THE ADJUDICATOR

BT has committed to working with the Adjudicator and abiding by his decisions. Most of the larger companies seeking to lease unbundled local loops or active in the broadband market have already committed to the process; most have already signed bilateral agreements with BT to underpin the work of the Adjudicator.

To date the companies supporting the Adjudicator scheme are:

AOL
BT
Bulldog
Cable & Wireless
Easynet
Kingston
Ntl
Telefonica
Thus
Tiscali
Video Networks Ltd
Wanadoo

Ofcom Chief Executive Stephen Carter said: "We welcome BT's commitment to making the process work, we welcome the fact that 12 of the most significant companies have signed up to the independent Adjudicator scheme; and we hope this drives growth in the future."

BACKGROUND TO THE ADJUDICATOR ROLE

The initiative is derived in part from Ofcom's experience in the ITV airtime sales market, where Ofcom was required to establish an independent Adjudicator to mediate between ITV and the advertising community under the terms of the Carlton-Granada merger Contract Rights Renewal (CRR) Remedy. The CRR Adjudicator has to date proven to offer a successful mechanism for effective and mutually-agreed resolution of disputes without onward referral to the regulator.

The decision to appoint an independent Telecommunications Adjudicator builds on other related changes in Ofcom's approach to the investigation of access and competition-related complaints and disputes in telecoms. In February 2004 Ofcom put in place a process which filters out unjustifiable or trivial complaints, allowing instead a greater focus on substantive barriers to competition.