BT's Proposed Offer Comments on the regulatory rules that apply to BT Addendum References

Connecting Public Institutions A response to Oftel's Consultation Document of November 1999: Connecting public institutions - BT's Public Institutions Internet Caller Service. Please email any reply to consultation@unmetered.org.uk or to CUT, 24 Broadway, West Ealing, London W13 0SU. Phone/fax: 0171 681 2831 © December 1999, The Campaign for Unmetered Telecommunications

BT's Proposed Offer (Question 4)

The Campaign for Unmetered Telecommunications (CUT) expresses profound disappointment in the unmetered Internet access services proposed by BT in the November 1999 OFTEL consultation document 'Connecting public institutions - BT's Public Institutions Internet Caller Service' [1]. These proposed services can best be described as offering too little for too much money. In our view, if implemented they will have negligible impact.

BT proposes unmetered access to the Internet for public libraries, further education colleges and Citizens' Advice Bureaux ('defined public institutions') through annual price plans for telephone modem and ISDN access. It also proposes evening and weekend services supplemental to the daytime service for those defined public institutions and schools that have previously been offered a special tariff.

The simplest plan would provide telephone modem access from 8am to 6pm five days a week for £ 600 plus VAT per year. Telephone modem access twenty-four hours a day, five days a week, would cost defined public institutions £ 750 plus VAT per year and £ 900 plus VAT per year for twenty-four hours a day, seven days a week. Schools would be charged slightly less, namely £ 710 plus VAT per year and £ 785 plus VAT per year respectively, for these plan. The charge for dual ISDN (BT Home Highway) is double those amounts inasmuch as it uses two telephone lines.

Although these plans may appear to be a significant improvement on what exists, offering more than fifty per cent off BT's metered rates, they do not represent good value for money. BT's soon-to-be-released ADSL service, which provides a permanent unmetered connection, may not necessarily prove cheaper at point of sale - at the moment we do not know retail prices - but will certainly be faster, more reliable and more convenient than dialup or ISDN connections.

Telephone modem and ISDN access are already old technology and will be superseded, possibly in a surprisingly short time, by broadband access. This is mainly because more can be done with broadband access: for example, streaming audio and video, which have obvious and extensive educational applications - in production, transmission and receipt - require a broadband connection for acceptable sound and picture quality.

We are pleased that BT will be producing plans for ADSL similar to those outlined above for telephone modem and ISDN access, but would have preferred to see even rough estimates now and are concerned at the length of time the production of detailed plans and any subsequent consultation may take. After all, the consultation document this replies to was released to the public about seven months before BT intends to introduce the telephone modem and ISDN plans.

In the medium to long term, defined public institutions and schools will surely buy ADSL from BT and third-party Internet Service Providers (plus cable modem and other broadband services depending on availability), simply because such services are technically superior, more flexible and appear to have a reasonable lifespan, rather than continue to subscribe to BT's proposed Public Institutions Internet Caller Service. This assumes that ADSL and other services become available; it is therefore important that BT's ADSL rollout, beginning early in 2000, be performed as quickly as possible for both educational and economic competitiveness reasons.

However, broadband access, as it appears to be taking shape in the UK at the moment, is far from a complete solution even at the next level up from home Internet access by individuals and families. What about rural schools and institutions - probably those who need it most? ADSL has a limited geographical reach (roughly four kilometres from the exchange) and cable networks will probably never be built in such areas.

We suggest that another consultation is begun by OFTEL on the crucial but, it seems, neglected issue of how to include isolated communities in the much-touted 'broadband revolution', and point OFTEL to our response to a previous consultation [2] which describes IDSL, a direct ISDN replacement at the exchange which provides a 128Kb/sec permanent connection with a geographical reach of about twenty-four kilometres from the exchange.

In any case, we believe that all the complicated and expensive BT proposals outlined above are unnecessary: BT should focus on providing an affordable single tariff. Quite apart from its universal application, it would resolve crucial issues not even touched on by the consultation document. For example, in the last Budget the Government proposed various initiatives to encourage teachers to prepare for lessons at home, possibly even giving them computers to do so. Given that teachers are not generally high earners, how will they be able to afford extensive Internet access given that the proposed BT plans extend only to the workplace?

Despite growing pressure from many quarters, BT has yet to offer unmetered local calls to the British public. Kingston Communications in Hull already does [3]. It offers unmetered local calls for £ 183 plus VAT per year for residential customers and £ 429 plus VAT per year for business customers, and also offers unmetered Internet access to schools for daytime use on weekdays for £ 379 plus VAT per year.

As Kingston Communications is subject to the same regulatory restrictions as BT we urge OFTEL to encourage the introduction, by BT, of unmetered local call services comparable to those offered by Kingston Communications.

It is in BT's best interests to do so now as BT can expect significant competition in Internet access provision in the very near future. NTL already offers, in some franchise areas, a 512Kb/sec cable modem service for £ 586 plus VAT per year with telephone line rental bundled [4]. Kingston Communications, via its Kingston Interactive Television Division, is now offering a 256Kb/sec Internet and e-mail service for £ 180 including VAT per year with an ADSL modem connected to the television and an infrared keyboard [5]. In situations where Internet content is not created television-based techniques are an excellent way of providing access cheaply: the Kingston and NTL services could easily be adapted to fit the purposes of educational and non-profit organisations.

We also note that the tariffing issues we describe, and hence much of the raison d'etre of this consultation document, simply do not exist in the United States which has enjoyed unmetered local calls for many years. Some US telecommunications operators have sought to charge by the minute for Internet traffic, but their arguments have been rejected by the FCC which stated in February 1999 that "The bottom line is that the FCC has no intention of assessing per-minute charges on Internet traffic or changing the way consumers obtain and pay for access to the Internet" [6]. The FCC further noted that US telecommunications operators are obtaining increased revenue from Internet traffic because many consumers are installing second and subsequent lines dedicated to Internet access; consumers pay for these lines just as they would pay for extra phone lines dedicated to voice calls. For the UK to be fully competitive with the US, it is absolutely essential that unmetered access is available in the UK at a reasonable cost. This has been stated by Tim Berners-Lee in an extended quote he sent to CUT a year ago [7].

Comments on the regulatory rules that apply to BT (Question 2)

We believe that OFTEL's regulatory price floors for BT services, with those presented in this consultation document being good examples, are extraordinarily high. As a benchmark we have looked at the LRIC of a local loop phone call in the US, where cost information is available, and have determined that the FCC considers $0.0022 per minute a reasonable estimate [8]. We do not know what BT's LRICs are, but we estimate them to be between three and six times higher than those in the US based on OFTEL's price floors and BT's 0800 service pricing. The regulatory rules that apply to BT do not allow it to set rates below its supposed long run costs, thus LRICs are extremely important in regulatory proceedings. In the past, we have refrained from delving deeply into LRICs because of their complexity. However, we believe that we must fully understand LRICs in order to more forcefully present our case for unmetered telecommunications in the UK.

We are still on the learning curve for LRICs but we believe that BT's LRICs are much higher than those for US telecommunications operators because of:

• the local phone network in the UK being under-utilised and/or under-built compared to the US as both per capita voice calls and data calls (Internet and fax) in the UK are roughly half those in the US on an annual call-minute basis;
• fewer phone lines per capita in the UK because of lower market penetration overall and fewer second and third or higher multiple lines per household as compared to the US (18 per cent of US households have two or more phone lines versus only 2 per cent in the UK)
• BT's local loop operating costs being higher due to operational inefficiencies
• fundamental differences in the way LRICs are calculated in the UK versus the US
• use of historical data by OFTEL as a proxy in calculating current BT LRICs
• the continued strength of the pound sterling against the US dollar.

We are now reviewing LRICs in detail and will have more to say on this vitally important subject in the future. For now our view is that, although the intent of the UK regulatory structure may be to protect BT's competitors from predatory pricing by BT, the practical effect appears to be a protection of BT's high profit margins and a lessening of competitive pricing pressures. In this case, the use of the Internet in the UK for all purposes is being impaired. We wish to see common sense prevail and, if necessary, appropriate changes in UK telecommunications regulation should be implemented.

We have no comments on:

• Question 1: Are the definitions of the institutions adequate to secure ring fencing of the special tariffs?
• Question 3: Do respondents have any comments on the proposed use of a special number range?
• We thank OFTEL for the opportunity of responding to this consultation document.

Addendum

We found this response difficult to write. This is because we realised that, in particular, 'educational access' is not merely constrained by the bricks and mortar of a school or further educational institute.

References

[1] Connecting public institutions - BT's Public Institutions Internet Caller Service:
http://www.oftel.gov.uk/publications/1999/info_super/cpi1199.htm

[2] Response to 'Access to Bandwidth - proposals for action':
http://www.unmetered.org.uk/reference/resp_280999.htm

[3] Kingston Internet Launches Untimed Internet Access:
http://www.kingston-comms.co.uk/news02.html

[4] NTL cable modem service:
http://www.ntl.co.uk/cablemodems/

[5] Kingston Communications announces Interactive Television pricing package - including UK's first TV-based untimed high speed Internet service:
http://www.kingston-comms.co.uk/news19.html

[6] No Consumer Per-Minute Charges to Access ISPs:

[7] Time Berners-Lee one year on:
http://www.unmetered.org.uk/news/news271199.htm

[8] Email from Professor Nicholas Economides, Stern School of Business, University of New York, to Charlie Sands:
http://www.unmetered.org.uk/news/economides.txt