Access to Bandwidth: Indicative Prices and Pricing Principles A response to the OFTEL Statement of May 2000, Access to Bandwidth: Indicative Prices and Pricing Principles. Please email any reply to consultation@unmetered.org.uk or to CUT, 24 Broadway, West Ealing, London W13 0SU. Phone/fax: 020 7681 2831 © June 2000, The Campaign for Unmetered Telecommunications

The Campaign for Unmetered Telecommunications in the UK (CUT) is pleased to comment on Access to Bandwidth: Indicative prices and pricing principles issued in May 2000. This consultation document presents BT's proposed price structure for Local Loop Unbundling (LLU) along with OFTEL's initial views on it. The price structure must follow basic pricing principles set out in the new licence condition - Condition 83 'Requirement to provide Access Network Facilities'. CUT views this consultation document as being very important because it is the first major step in defining the economics and scope of LLU which will be critical to its success or failure in the UK.

CUT is not in a position to comment on the legitimacy of BT's proposed LLU costs due to the complexity of determining them and looks to the use of a valid bottom up local loop cost model to evaluate BT's own 'top down' cost information which is being used as a starting point by OFTEL. CUT strongly recommends to OFTEL that it should use a commercially available local loop model such as the HAI Model developed by Hatfield Associates of Boulder, Colorado which is considered by many to be the most detailed cost model of the local loop in existence today. The model has been mainly applied in the USA, but it can be customised for any country in the world and has recently been applied to local loops in Australia and New Zealand. CUT believes that OFTEL has been unduly reliant on its own local loop cost model and that for an issue as important as LLU it should seek independent corroboration of its own model's results with an independently developed and internationally recognised cost model. Hatfield Associates was founded by Dale Hatfield, who left the firm to become the Chief Technologist of the FCC. OFTEL should also look at LLU costs as developed by Public Utility Commissions (PUCs) in different areas of the USA as a benchmark for evaluating the reasonableness of BT's proposed prices and price framework. The USA is well ahead of the UK on LLU and OFTEL should draw as much as it can from this experience.

Assuming that the relative disparities which BT shows for connection costs are valid between line transfer (£130 or £190), spare pair (£230 or £385), and new lines (£585, £775 or £1,185), CUT is concerned that this will have the following undesirable consequences:

1. BT will have a financial incentive to push for new line installations and will seek to thwart line transfers and will overlook available spare pairs.
2. Although OFTEL expects that unbundled loops will be used primarily to provide broadband services to customers, many ADSL providers may feel compelled to also offer voice services in order to take advantage of the lower connection costs and quicker connection time for a line transfer.
3. BT's voice customers may resist moving their voice service to a new company, especially if it will not offer indirect access for long distance and international calls.
4. BTopenworld will have an unfair competitive advantage because it will be able to piggyback ADSL lines on existing BT voice lines so its costs will be lower.

In order to promote a successful implementation of LLU in the UK, CUT recommends that OFTEL should take the following major actions which will avoid the above problems:

1. Mandate BT to allow competitive companies to offer ADSL services on the same line on which BT is providing voice services. This is called Line Sharing and was invoked in the USA last November by the FCC due to the unsatisfactorily slow progress with LLU (only 0.22% of the local loop was unbundled then). Line sharing in reality is partial LLU as compared to full LLU which is all that is dealt with in OFTEL's consultative document. Line sharing has the advantage of minimising the need for new line installations, speeding up connection times and greatly reducing the cost of LLU to competitive companies. It also helps ensure that competing companies will be on an equal footing with BTopenworld. The monthly costs for line sharing in the USA have ranged from $0 to $8.25 with $0 being argued for on the basis that the ILEC should be charged nothing for DSL-shared lines because the ILEC's monthly line costs do not increase. These line sharing costs are far below those proposed by BT for full LLU. For further information on line sharing, see:

   http://www.fcc.gov/Bureaus/Common_Carrier/News_Releases/1999/nrcc9092.html

   http://www.clec-planet.com/legal/0100legal_1.htm

   http://www.clec-planet.com/tech/0006phifer.htm

   http://www.rhythms.net/pr/bell-atlantic.html

2. Require BT to establish a separate UK Local Loop subsidiary which would be responsible for owning, maintaining and operating BT's local loop. All companies who wanted to offer broadband services via LLU, including BTopenworld, would be charged the same wholesale rate and would have the same conditions apply to them. This would include requiring BTopenworld to lease co-location facilities and BTopenworld having the option to offer bundled voice services distinct from those offered by BT. By taking this approach, it will help ensure that the licence condition which prohibits BT showing undue preference or exercising undue discrimination will be adhered to fully. In particular, this means that the estimated £21.1 million in LLU system set up costs will be shared across all companies offering ADSL service in the UK including BTopenworld, which is likely to have the largest share of ADSL installations. The establishment of a separate UK Local Loop subsidiary by BT also provides the basis for OFTEL, should it deem it necessary for full implementation of LLU, of forcing BT to divest itself of the subsidiary in order to create an independent third party local loop provider. The benefits of this were fully described in CUT's previous submission on LLU under the heading Option Zero which was so named because OFTEL never considered it as an option.

If OFTEL proceeds with only the adoption of full LLU, CUT predicts that there will be a very limited take up of LLU in the UK. This would be confined to premium priced high speed business ADSL services and specialist xDSL broadband services such as SDSL which require a dedicated line with no voice services. Moreover, these services would be confined to high volume exchanges in order to keep the cost of co-location facilities on a per line basis within reason.

CUT also notes that there are technological alternatives to LLU which are becoming increasingly competitive. These include fixed wireless, WAP and eventually 3G wireless, satellite, fiber to the home and innovative last mile alternatives such as laser (TerraBeam) which operates in an unlicensed part of the spectrum. It is in OFTEL's and BT's best long term interest to see that LLU is implemented in as efficient and cost competitive a manner as possible.

CUT also makes the following detailed comments concerning specific aspects of BT's proposed full LLU pricing structure and OFTEL's initial conclusions:

• CUT concurs with OFTEL's view that BT should not charge for repair costs on a per occasion basis and should use an estimated average repair cost which would be included as part of the annual rental charge for the loop.

• CUT concurs with OFTEL's view that the expected cost of DACS should be averaged across all loops.

• CUT believes that BT should not be required to supply new loops if provision requires over 100 man hours of work within the access network, rather than the 50 man hours cut off it proposes. This makes it consistent with BT's Universal Service Obligation (USO) requirement for line provision.

• CUT believes that a disconnect fee should not be charged for reconnecting a line to BT as part of the disconnection as this is discriminatory. Only a tie cable disconnect charge should be made.

• CUT notes that BT's proposed prices for providing a new line appears excessive given that the same end result could be accomplished at lower cost. This could be done by having a potential customer request a new line from BT at BT's standard rate for a new line and then switch it to broadband use shortly thereafter. Even with applicable penalties, the total cost would be lower than what BT is seeking to charge for new line provision under LLU.