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.

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.

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.

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.

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 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?

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.

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.