Campaign for Unmetered Telecommunications

  • Introducing CUT
  • Past consideration of Local Loop Unbundling
  • Effective demand
  • Current Trends
  • Current Examples
  • Existing and future supply options
  • The case for intervention
  • Options for action
  • Option Zero: Divestiture of the Local Loop
  • Conclusion
  • Option Zero

    A response to Oftel's Consultation Document of November 1998:
    'Access to bandwidth: Bringing higher bandwidth services to the consumer'.

    This document in also available in Microsoft Word format for offline reading as the full document or as a one-page abstract.

    Please email any reply to or to
    CUT, 24 Broadway, West Ealing, London W13 0SU.
    Phone/fax: 0171 681 2831

    © March 1999, The Campaign for Unmetered Telecommunications

    Introducing the Campaign for Unmetered Telecommunications

    The Campaign for Unmetered Telecommunications (CUT) evolved during early 1998 as an independent, non-profit, non-partisan grassroots organisation representing the interests of ordinary telecommunications users in the UK. Through the Campaign's growth, its Committee and its members have amassed a significant pool of knowledge, data and experience concerning the true capabilities of the telecommunications infrastructure and the untapped potential for broadband services to the home. Further information on the Campaign and its specific projects and aims is available from its Web site at

    We note that, while Oftel's consultations in the past have usually resulted in responses only from within the telecommunications industry itself, an effort has been made here to elicit feedback from other interested parties. We are pleased to take this opportunity to add whatever ideas, experience and expertise we can to the debate. Before doing so, however, we wish to state that Oftel should be addressing as an urgent priority the current lack of effective competition for local call services suited to Internet access from the home under POTS. This lack of competition is obvious given that neither BT nor any of the three principal cable operators nor any other provider in the UK offers unmetered local data calls as a generally available service. The imaginative and commercial use of the Internet in this country (if not the number of nominal users) lags significantly. This is because ongoing Internet usage costs are significantly lower in the United States, Canada and other countries where consumers have the choice of unmetered local calls, hence flexible tariffs, as part of the regulatory framework.


    Increasing the bandwidth available to residential and small business users for data traffic, and making available at reasonable cost broadband services that exploit this increase, is vital for the long-term socio-economic future of the United Kingdom. Oftel is to be applauded for acknowledging this. Moreover, such developments are in the PTOs' interests because they accompany the removal of data traffic from the voice network.

    Oftel's consultation document is useful in highlighting some of the concerns surrounding timely and cost-effective provision of such broadband services, but it fails to investigate several important and commercially significant infrastructure issues. This problem may initially be sensed in the second paragraph (1.2) of the document, which defines its consultative scope:

    This consultative document looks at competition and choice...
    over BT's local loop

    A decade after the privatisation of British Telecom and the liberalisation of the UK telecommunications industry, the local loop 'remains BT's'. Competition for local loop services in the residential and small business sector is limited and barely exists outside urban areas: 40% of the nation will still not have access to cable services by 2002, using Oftel's own figures. The local loop represents the most significant access point to the country's telecommunications infrastructure for the majority of the population and will remain so for some time. Before dealing with the specifics of local loop stewardship, however, we will discuss some of the other issues raised by the consultation document.

    Past consideration of Local Loop Unbundling (LLU)

    Firstly, some clarification of recent history is called for. In section 1.7, Oftel suggests that, in the mid-nineties, people were not discussing 'mass market Internet or video services'. This is untrue revisionism and should not be allowed to slip into the record. Many articles, books and even television programmes dealt explicitly with the issue at that time. The (multimedia-based) World Wide Web was well developed by mid-1994 and the development, by then, of usable software excited general interest in the Internet. RealAudio and other streaming audio and video tools were introduced, as was Shockwave's multimedia plugin, not to mention the CU-Seemee video conferencing software which formed the subject of an Open University programme then. By Christmas 1995, Internet use was becoming a principal reason for buying home computers. As an aside, we observe the coincidence that, in mid-1994, Oftel took over stewardship of the UK's telephone numbering system from BT.

    Certainly, Oftel and other regulatory organisations failed adequately to spot the mass-market Internet trend, let alone its early actualisation, but any claim that 'no-one was talking about such things [then]' is misleading. Indeed, if the UK regulatory regime had been 'talking about such things', the UK could, by now, be a world e-commerce hub. It is not. It is significantly behind many countries, including some of its European competitors, in both low and high bandwidth deployment and usage.

    On the broadband side, cable modems and other technologies were being widely discussed, trialled and tested in North America in the mid-nineties. In this country, Videotron UK, while still firmly connected to its Canadian parent company Groupe Vidéotron Limitée, was promising deployment of cable modems in its UK franchise areas within three months of their successful commercial deployment in Canada: the Canadian deployment took place in 1996. By that time, though, the merger of Videotron and three other cable companies (Bell Cablemedia, Nynex and Mercury) to form Cable and Wireless Communications (CWC) was already well in hand and innovation in broadband access abruptly ceased. The Nynex cable modem trials undertaken in Manchester were closed in early 1998 without any coherent reason being given for the closure, data collected from the triallists with their co-operation was discarded and CWC's priorities turned to digital television. In the intervening period, xDSL and, in particular, cable modems have been launched with tremendous success across North America and the Far East and in several European countries.

    There are also broadband techniques that completely bypass the local loop. One is 'digital powerline' technology (developed by Nortel), that uses the electricity network as carrier and two-way satellite IP (currently being developed by Astra). There are also three types of wireless access. Firstly, there are proprietary solutions for POTS equivalents and broadband access, being implemented by Atlantic Telecommunications using an Israeli solution. Secondly, there is a similar solution for broadband access only, being implemented by Tele2. Finally, and probably most importantly, broadband mobile access is being developed by a number of suppliers, including Symbian and BT (in collaboration with Microsoft). We observe that digital powerline technology, the only one of those techniques wholly invented and developed in the UK, appears likely to be first deployed in Sweden.

    Oftel indicates in section 1.8 that it was not as proactive as it should have been. It was prepared to 'wait and see'. This would have been justifiable if mid-nineties Internet and other data usage could not have been extrapolated. This extrapolation was possible and provision should have made for a planned response to Internet access trends in the UK's regulatory framework.

    Effective Demand

    In 2.2, Oftel defines 'effective demand'. It argues that mere consumer desire for high bandwidth services is not sufficient: obvious demand exists, but the key is whether or not that demand is 'effective', and how an 'effective' price is to be calculated.

    After all, an 'effective' price in a commoditised, properly competitive market will be lower than with monopolistic provision: this has always been one of the key justifications for privatisation. Further, there is no independently audited cost information available to the general public or even, we would argue, to Oftel, through which we and it might judge BT's cost claims or, indeed, those of any other PTO. (We recognise that, in a competitive market, such potentially sensitive information would have to be made available to those who wish to consult it under strict legal constraints such as non-disclosure agreements). PTOs can inflate the apparent costs of their service provisioning and yet still make enormous profits. What threshold do profits have to cross before it may be determined that the services that lead to these profits are being charged at above a 'reasonable' rate? Oftel seems to be putting the onus on the consumer to be 'reasonable', assuming that a PTO's charges will be 'reasonable' and no more. Surely, as regulator acting on behalf of the consumer, it is Oftel's duty to ensure that rates of return are not excessive.

    This is only part of the equation, though: PTOs must realise that they are investing for the long-term, not just in technology, but also in customer-base. A vital part of that investment is gaining and keeping market-share, so any 'reasonable' rate should be determined with reference to that goal. If the company does not feel the pressure of competition pushing it to this end, Oftel has failed to foster the competitive market of which it boasts. In a sense, then, a company's claim that there is 'no effective demand' is a case for Oftel's immediate intervention!

    The price the market will bear for home broadband access is determined not merely by costs to the consumer balancing costs to the provider but also by the effectiveness of the market. At the moment, there is scant objective evidence to determine what this price is or should be, except in countries already deploying broadband consumer solutions. There the mean 'effective' tariff is simple to determine: it appears to be roughly £30 per calendar month for unmetered access (24 hours a day, seven days a week) using xDSL or cable modem services. Our own selective survey of current CWC subscribers, and unsolicited comments we have received, confirms that this is clearly a threshold market price. Indeed, it is what BT is charging its ADSL triallists and is also the price point aimed at by satellite and cable operators for their most commonly requested digital television service packs. This indicates how much home users are prepared to pay for entertainment and multimedia services. It is interesting to note that the commercial interests involved in broadband access provision appear to have made no attempts at all to ask their customers what pricing levels would be considered acceptable. We acknowledge that doing so is not straightforward, but the majority of current UK Internet users are surely in a position to offer an opinion. If the £30pcm benchmark cannot be matched by commercially deployed solutions in this country the regulator must ask for explanations.

    (We note that metering, by time or by data, of broadband services is technically possible although undesirable. However, NTL and CWC freely use the expression 'always on' in their literature, so we assume that they intend to offer unmetered services).

    To summarise, even if unbundling leads to an effective market, how long will it take for market balances to prevail? Again, it is not sufficient for Oftel tacitly to apportion 'responsibility' to consumers in determining whether or not their own demand is effective. Surely, in a properly functioning market, particularly one as profitable as that of the telecommunications industry, the mere fact of demand ('effective' or otherwise) should spur entrepreneurially-minded companies into action. If it does not, it may be that demand is not 'effective' because of market failure.

    Current Trends

    Throughout its consultative document, Oftel considers SMEs and home users as a single market block. Indeed, owners of small businesses expect pricing levels for services supplied to their companies to be roughly commensurate with those supplied to their homes. Broadband services, however, have somewhat different profiles for business use, small business use, and home use.

    Businesses not involved in the entertainment industry are unlikely to show significant interest in 'video-on-demand' or other entertainment services; they do, however, require high-bandwidth connectivity to, among others, their own partners and other premises. They also need to be able to service their own Internet presence, including web sites, the taking of orders electronically, and other elements of what is commonly referred to as e-commerce, which the current government is attempting to promote. Many businesses which have overcome the technical problems associated with these issues come up against the current financial constraints on broadband service and often see little effective return on the high costs of obtaining these services.

    Home users' approach to broadband services is very different: apart from proprietary 'video-on-demand' or other services which may become available, home Internet usage falls broadly into four categories: communication, entertainment, making online purchases and research for educational and hobby needs. The unique nature of the Internet as a means of communication results in use of one of those areas rapidly and inevitably evolving into use of other facilities. Before long, users become active members of online communities so their bandwidth needs increase, as does the amount of time they spend taking advantage of the facilities available and making their own contribution to those facilities. They are prepared to pay a considerable premium for services that satisfy this increased demand for bandwidth, but not an unreasonable one as demonstrated earlier. Because of the global nature of the Internet community, they become aware of price differentials between Internet service provision in the UK and in other countries, finding their own purchasing power to be extremely limited. It is therefore vitally important that 'effective' prices for broadband access are at levels home users can afford so that the UK can become a leading part of the Information Age.

    UK companies and individuals became influential in the development of personal computing in the 1980s because of ubiquitous and cheap access to the technology. Simply put, individuals could afford to become interested in computers: these interests then developed into globally significant economic achievements. The nation must have cheap and ubiquitous access to the Internet, and not only to proprietary entertainment services, so that this country can improve its position in the world economic order. Given that the UK has a huge intrinsic advantage over most other countries, in that English is the lingua franca of the Internet, that advantage must be exploited.

    Current Examples

    Oftel provides three examples of current broadband activities: BT Home Highway, the cable operators' proposals and the OPEN satellite initiative. All of these are flawed, and in ways that say much about the prevailing market situation in the UK.

    BT Home Highway has been colloquially, and validly, described as Home Hypeway and Home Highway Robbery. The service is not competitively priced for the relatively meagre bandwidth it provides, and is metered by time. Comparison with ISDN provision in Germany is shaming. That BT feels able to describe Home Highway as a significant technical advance ('the latest on-line solutions', as its current poster advertising proclaims) shows how illusory a so-called competitive market is in this country. Cable operators have simply ignored the service and make no provision for anything remotely similar in their charging structures for home users. More worryingly, the inflated pricing differentials between BT's Home Highway, ISDN2, (proposed) ADSL and current leased line provision are stifling innovation and implementation - a reason why, even though technically successful, ADSL remains only 'on trial', despite already having been implemented in many cities across North America and, within the next few months, in Germany; the problem is not technical, but commercial. We understand from a source within BT that 'if there was a competitor, we'd sweep the board with ADSL'. There is no competitor, so BT is making little effort to deploy an affordable consumer solution. This is not competition at work. This is market complacency from all levels.

    Cable operators, because they have their own apportioned fiefdoms, feel no compelling reason to compete effectively in this developing area of the market. Cable modems were first touted in the mid-nineties. They are available commercially elsewhere in Europe and much of North America. In the UK, there has been trial after trial: the results have been good but again, with no real spur of competition, the rollout of cable modems has been abandoned or postponed. CWC, for example, have specified that their digital set-top box contains a cable modem and is able to be connected to a PC, although when users will be able to use the cable modem through a PC (rather than through a television set) is not clear. NTL are planning a cable modem launch later this year, but access thereto will be a geographic lottery. If one company offers cable modem service in one of its franchise areas, this is not competition - it cannot offer that service in a competitor's area, so the competitor has little incentive to follow suit. Therefore, the only reason the competitor would launch a service would be if it were guaranteed an immediate revenue stream. The fact that such a service might be required to maintain market-share is hardly entered into. This is not a fully functioning, competitive market. With cable operators running profitable POTS solutions, and with almost invariably no local competitors, they have little incentive to innovate. This conflict of markets is not present in North America, where cable operators have identified their market opportunity to be the provision of innovative broadband services, not POTS, building these services on their experience in providing cable television.

    Finally the OPEN satellite initiative remains pie in the sky. A POTS return path (from the user) can hardly be considered adequate for true interactivity - and all but the selectively myopic suggest it is, particularly in the UK, where even local telephony is metered thus making the cost of access open-ended. As the Internet evolves as a communications medium rather than simply a data retrieval mechanism, the speed of the return path must at least approach the speed of the downstream path. Briton Tim Berners-Lee (dubbed the 'Father of the Web') has submitted a opinion piece to our Campaign which includes the following paragraph:

    To be practical, Internet connections must be permanent - after all, when available but unused they need take no resources apart from the local wire. The time taken to dial up over a telephone line makes many uses of the Internet - such as checking the weather, or ordering a turkey, prohibitively bothersome. Regulatory systems and charging which support the status quo in which the telephone system is used to dial every time the internet is used hobble a country's ability to use the network - it is a bit like asking a motor vehicle to be preceded by a man carrying a red flag. It is forcing the new technology to operate in the mode of the old technology.

    Existing and future supply options

    Oftel mentions that extending fibre all the way to the home user's premises is not currently a viable option. This is true, but there is no reason to dismiss this as an unattainable target: PTOs must not be allowed to stop expanding the capabilities of their local networks merely because significant investment is required. Cable companies undertook the costly installation of their own local loops at, they would argue, considerable risk. Their investment has been returned in most cases, and will be returned many times over in the future. With advances in technology, there are no grounds for assuming that 'final mile' fibre installations for home users should not be feasible in the medium term, never mind the distant future. Fibre to the sitting-room must be planned for, not just wished for, and not only for the sake of a healthy telecommunications industry, but for the economic well-being of the nation as a whole.

    Oftel rightly points out that, as things stand, xDSL technology over the local loop remains the most likely short- to medium-term broadband solution for the majority of home users and SMEs. Some broadband access will occur over cable networks, constrained by their restricted reach as explained previously. Some will be provided by techniques not involving the fixed local loop, but we will not even guess what proportion of the market either of these alternatives will ultimately take up. There must be timely and widespread deployment of xDSL at affordable rates, as explained earlier. Oftel illustrates some initial technical issues, such as distance limitations, but all the drawbacks have a solution: investment to bolster the infrastructure. There is no reason why a sector as extraordinarily profitable, and with such high margins, as telecommunications should not make that investment, particularly when it is significantly less than would be needed to provide a fibre-to-the-door solution. Even so, BT is hinting that the ADSL service currently being trialled in West London cannot be offered viably at the £30 per calendar month it charges its triallists, and that commercial deployment will involve charges in the region of three times that sum per month. Every triallist we have contacted has said that such charges would be unacceptable and would result in him or her not taking up the service on deployment. As mentioned above, £30pcm is the average commercial rate in other countries, which prompts an obvious question: why can BT not afford to offer the service at a rate similar to that offered by providers in other countries? Particularly considering that BT is rightly proud of how advanced the UK telecommunications infrastructure is, as a whole, compared to that of other countries.

    Malcolm Matson, founder of Colt Telecommunications plc, has claimed that '…ninety-nine per cent of the cost of telecommunications is up-front investment. The cost of running a network is minuscule…' It is quite clear that the marginal costs of packet-switched xDSL services are even less than those of circuit-switched POTS. Therefore, taking standard amortisation equations into account, there is no real reason why the effective price of provision should be greatly in excess of the target figure of £30pcm. Telecommunications operators may argue that set-up costs are high, especially in the early stages of the market, but will no doubt make provision for this in the installation charges levied to their subscribers.

    Oftel's statement that the costs of existing solutions, like leased lines, 'are such that they are not likely to be attractive to residential and SME customers' is fatuously disingenuous. What existing uptake of these technologies there is shows that current pricing levels are well beyond the means of the average SME, let alone those of home users.

    The case for intervention

    Oftel is very reluctant to intervene, and even suggests that the status quo is an option. The facts are clear, though: demand exists and, in a properly competitive market, that demand would be effective. The physical inputs exist. And yet no PTO has a coherent consumer broadband strategy. Deployment of the promising xDSL technology can only be impeded by one company holding to ransom the medium over which it transmits data. There is quite obviously a prima facie case for Oftel's immediate intervention. Oftel's laissez-faire policy over the last half-decade on the Internet phenomenon per se has proved injurious. Its lack of foresight has caused an anomaly - Internet Service Providers (ISPs) are exploiting a loophole in the 'local-type' call tariff, introduced by OFTEL, which has led to the phenomenon, almost unique to the UK, of 'free' ISPs. The regulator is now in the invidious position of attempting to find an equitable solution to the problems this has caused. The pricing model 'free' ISPs have adopted has increased interest in the Internet. However, quantitative uptake says little about qualitative usage – if UK home users cannot make effective use of the medium despite having nominally 'free' access thereto, the regulator is evidently failing in its responsibility to meet the market's needs. Similar mistakes must not be permitted with emergent broadband offerings. We are not advocating the abolition of one model in favour of another. We are advocating that the regulatory regime should be such that PTOs feel obliged to offer their customers as wide a choice of tariffs and bases of charge as are possible. The current structure of interconnect and termination charges, whilst seemingly conducive to a competitive, multi-operator environment, paradoxically hampers truly innovative tariff packages. Oftel must ensure that similar inhibitors are not introduced to the emerging broadband market.

    Options for action

    Oftel suggests five possible options for action. Option One is the most radical they propose, requiring BT to open up its infrastructure to other organisations at the exchange level. Even so, we suggest that Oftel has left out the most significant option of all, that of unbundling the loop itself, which we shall term Option Zero. Before we define and explain our proposal, we would like to accept Oftel's invitation to discuss the disadvantages of its own.

    There is one constant in all the options Oftel suggests: BT. Even under Option One, BT would remain as owner and operator of the infrastructure, as well as the dominant service provider therewith. It would be up to BT to ensure the across-the-board integrity of its own and its competitors' services over its own infrastructure. Attempts at this level of unbundling in the USA have shown that the loop owner's intrinsic conflicts of interest are the cause of misunderstandings and ongoing difficulties. Close scrutiny and timely intervention by the Regulator, not only generally, but on a case-by-case basis, takes on primordial importance. In light of the old adage that 'possession is nine tenths of the law', we suggest that post factum regulation (which would, more often than not, be the case) would be unable to prevent abuses. Alternatively, a strained 'allocation of markets' might stifle the intensity of competition against the artificially constrained incumbent, which would lead to stagnant and complacent services, mirroring the current situation with local POTS provision. Oftel claims to encourage 'new and innovative' pricing structures, but seems unable to realise why they are rarely forthcoming. A similar lack of variety must not be allowed to happen with broadband services. Effective service is the primary objective. If delicately constructed competition achieves this, so be it. If it does not or cannot, it is not the tragedy that Oftel sometimes suggests. The high approval ratings of services in Kingston Communications' license area, as well as the negative popular reaction to clumsy attempts to induce competition there, are testaments to the intelligent pragmatism shown by consumers.

    The conflict of interest implicit in Option One increases with each of the successive options Oftel suggests, leaving BT progressively more and more in control of the output chain. Oftel might argue that legislation and regulation would force BT to act on an artificially level playing field, but legislation and regulation are slow beasts in the rapid technologically-driven industries. The stark and simple fact remains that BT would be in a privileged position no matter what option was chosen, and no amount of teleological justification can hide that. BT's competitors must not be required to endure this situation; BT did not arrive at its dominant ownership of the local loop through construction, innovation, acquisition or competition: rather, the local loop was handed over to it by government. Most of the research, innovation and investment in the local loop were made while the GPO owned the telecommunications infrastructure. The fact that many years have passed since BT took over does not make this any less relevant. It is a crucial fact which must be borne in mind when discussing competition: BT was handed what was in effect a massive initial subsidy - that of the majority of its infrastructure. Nowhere has this subsidy been more noticeable than in its own local loop, therefore no other PTO has been able to compete effectively in that domain.

    It is quite probable that the regulator will not have the resources effectively to police BT so that infrastructure ownership and service provision are kept separate. Cross-subsidy is very difficult to prevent, because it is not simply the explicit passing of capital between ventures, but rather the result of having sufficient corporate security to allow a venture or ventures to be offered to users at below the effective market rate. This is starkly illustrated by BT's decision in February 1999 to run the former BTClickPlus as a 'free' ISP, BTClickFree, with the user paying call charges only to access the Internet. While Freeserve and all other 'free' ISPs take their slice of the interconnect charge to fund their services, BT's only true revenue, from the majority of its subscribers who dial up to BTClickFree, is through online advertising. This cannot provide an adequate revenue stream for a significant period, so there must be cross-subsidy. Who is to say that even greater abuses of position would not happen with improperly regulated broadband solutions?

    Option Zero: Divestiture of the local loop

    The Campaign for Unmetered Telecommunications proposes local loop unbundling that lives up to its title: if BT wishes to provide services over the local loop, it must relinquish its ownership thereof. This includes copper pairs, aggregators and local exchanges.

    Separating the infrastructure from the services

    The local loop and its successors in the 'last mile' are, and will be, vitally important. No matter how competitive the market is in other respects, this is one area where home users and SMEs cannot easily buy into alternatives. As such, it is incumbent upon the Regulator to ensure that access to the loop is as effective and open, and not discoloured by the interests of any particular party, as is practical. Nation-wide competition at the physical level cannot be attained without tremendous expense to any PTO. Cable companies are laying their own local loops in built-up urban areas where they see the most potential for profitable exploitation, but even this initial investment in those circumstances is proving costly. Option Zero, therefore, provides a compromise: local loop ownership should be separated from service provision and should thereafter reflect the requirements and expectations of every service provider and interested party.

    Who would own the local loop?

    Divesting infrastructure from services in the UK is not a new idea: it was attempted on the privatisation of British Rail. Unfortunately, the political considerations of the time, combined with inadequate legislation and regulatory power, have led to a deterioration in service. Railtrack does not have an incentive adequately to invest in infrastructure, and the operating companies do not have sufficient influence on the decision-making processes of Railtrack. It is important that the same fate is not allowed to befall LLU. As such, our proposition does not mirror this strategy precisely.

    Rather than giving the local loop to a monolithic company, accountable only to shareholders and the requirements of an under-resourced regulator, we suggest a different model as basis for our proposal: peering on the Internet. ISPs have long realised that success requires competition where competition is suited, and co-operation where co-operation is needed. In fact, the Internet was built with that very principle in mind, and that principle is the reason for its astronomical success. Competition lies in service provision, reliability, efficiency, international connectivity and branding. Co-operation lies in intra-national routing. This sensible, utilitarian approach has borne fruit throughout the world. The primary example in this country is the London Internet Exchange (the LINX). This was set up as a not-for-profit, neutral organisation, whose board comprises representatives of all its members, the otherwise competing ISPs. Ostensible competitors meet regularly to discuss how to maintain an effective UK network and jointly fund its interconnective aspects.

    Likewise, a collectively representative organisation could be established to oversee the maintenance and development of the local loop. The Local Loop Board, as it might be termed, would be funded by and include, as a first category, representatives from all UK PTOs with an interest in direct local loop service provision. Secondly, it would contain representatives from regulatory bodies, local authorities and other social organisations. Finally, it would include representatives from content providers, representatives from ISPs and individual users, whose interests the Board would ultimately serve. The Board would be an open and discursive organisation, with democratic procedures and streamlined operation, and would adopt a devolved structure to take account of local requirements. It would not represent an extra layer of bureaucracy, rather a separation of powers. Indeed, because of the level playing field such a diversely-constituted organisation would provide, there would be less red tape than if an artificially-constrained BT had to emulate such an organisation within its own corporate structure, which would be the effective result of Oftel's Option One.

    The Local Loop Board will have dominion over the physical local-loop infrastructure currently owned by BT. This will include the copper pairs, aggregators, local exchanges and other paraphernalia of the loop. Day to day operation, maintenance and development will be provided by any companies and agencies proving themselves cost-effective in so doing: requirements, developed by the Board, will be tailored to local specifications and contracts will be bid for through competitive tendering. Different organisations may well end up servicing different regions and aspects of the loop. Companies like BT will win some contracts. More locally motivated organisations will take the lead in certain others. The only requirement will be adherence to standards and interconnectivity protocols.

    Economies of scale will enter the equation, and cable companies et al who are currently engaged in establishing their own copper-pair networks under the pavements of cities across the country may prove that their networks are more cost-effective than BT's. They would then wish to peer elements of their own networks with the national local loop as managed by the Board. The open access this will give them will increase their market opportunities, whilst giving the loop's service providers access to a modern, locally targeted infrastructure. Kingston Communications, which has always presented something of an anomaly in the current regulatory framework, would be invited to join the Board and include its own copper-pair network in the Board's activities, opening it up to further innovation.

    Charging for Option Zero

    Oftel's concerns about the basis for charging would become irrelevant, as charges would be established on a case-by-case basis, by mutual agreement and competitive tender. As the Board would include representatives of all the major telecommunications operators, such charges would very quickly reach a cost-effective equilibrium: It would not be in the PTOs' interests to charge themselves access to the infrastructure at levels none of them could afford. Conversely, they would have to charge sufficient access rates to fund the costs of maintaining and developing the local loop. The Board, therefore, might be described as a neutral substrate on which vibrant competition in service provision would develop. To ensure that this remains the case, an organisation's position on the Board would be determined by their also being an active service provider or a social organisation. The effect of potential conflicts of interest would be negated by the checks and balances of all possible competitors being in an identical and equal democratic position on the Board. No entity would be in a position to exert undue influence at any level, due to the persistent presence of the Regulator in all negotiations as a moderator.

    The Board would then constitute all interested parties, not just one with its hand tied unconvincingly behind its back. This would allow all of Oftel's indirect LLU options to be offered by any one service provider to another. For example, in one area there might, through competition, be three direct providers with representatives on the Board. These, in turn, might make their facilities available to a multiplicity of resellers. Services to the end user could be highly tuned and focused by multi-layer competition with the Board being a neutral and levelling party.

    The benefits to BT

    By being relieved of its schizophrenic burden, BT would be free to compete equally on the local loop. It would not have constantly to look over its shoulder, debating with the Regulator over its position in the market and juggling mandatory universal service with its desire to compete effectively.

    In return for divesting itself of ownership of the local loop, BT would be relieved of its universal service obligations – these would pass to the Board, which would be responsible for subsidising otherwise uneconomic services. If no single PTO proved able to undertake such provision in a given situation, it would be undertaken by the relevant local authority by virtue of its seat on the Board. This would be funded by a top-sliced universal levy from all PTOs, similar to the arrangements in place in the United States. We leave it to BT and other PTOs to determine what additional compensation, if any, should be paid to BT for its divestiture. The Regulator would conduct such negotiations in its moderatorial capacity.

    As POTS fades in significance, to be largely replaced by broadband and packet-switched solutions, BT would become just another PTO, albeit an extremely significant one. By going forth with Option Zero, BT's true obligations and requirements would be accurately and transparently represented as a proportion of the whole telecommunications market.

    The time is ripe

    Some large Internet Service Providers are looking to become local loop operators, but are not convinced that the stilted market in which they will find themselves is suited to their requirements. The benefits of divestiture represented by Option Zero, or something like it, deserve debate and consideration. Such divestiture can be implemented in stages, with a shadow board overviewing BT's operation of the loop and culminating in the eventual free tendering of its maintenance and development. As each stage progresses, careful account of members' and users' requirements would be taken. The Board would be flexible and pragmatic in its evolution and market-driven in its vision.


    Our document is not provided in the spirit of dogmatism. We hope it widens the debate to more radical changes than those that Oftel has put forward. Evidence of the UK's poor position in the evolving world of e-commerce suggests that the status quo is not an option. We must make more efficient and rational use of our infrastructure; we must encourage real competition; we must speed up the deployment of broadband services; we must put users, rather than PTOs, first. We suggest that these goals can be achieved neither by artificially constraining a dominant player nor by closing one's eyes and hoping for the best. With global communications and universal access to markets, the UK's principal advantages are the resourcefulness of its population and the ubiquity of its language: these advantages are too precious to constrain.

    The means of expressing these advantages - information and communication - are accessed, and will continue to be accessed, through the local loop. Implicit in Oftel's consultation document is a yearning for the simplest, cheapest and least disruptive way of letting every PTO who wants to provide broadband services have access to the local loop. Were it to take place it could well propagate the existing appearance of competition: we suggest that Option Zero replaces appearance with reality.

    From the scope of Oftel's consultation document and its method of publication, it is obviously anticipated that many interested parties other than those within the telecommunications industry itself will respond. Every respondent will be at pains to defend his or her own vested interests. We at the Campaign for Unmetered Telecommunications stress that the only interests we represent are those of our thousands of supporters, many of whom are already experienced users of broadband services and therefore have a voice which must be heard in this debate. Users' opinions are rarely sought at the onset of regulatory changes, and we hope that this consultation process indicates a shift in attitudes.

    Text by Nick Mailer, Richard Sliwa and Alastair Scott

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