In essence, following the 2005 Telecoms Strategic Review (TSR) the deal struck by BT with its regulator, Ofcom, was that in exchange for BT undertaking to semi-detach its copper local access network (now Openreach), Ofcom would not force BT to separate this activity completely and would allow BT some unspecified degree of extra freedom in the retail (direct to consumers and businesses) market.
Well, so far Openreach is up and running and has been steadily moving towards providing fully equivalent treatment to other communications providers (CPs) and to the rest of BT in relation to local loop services, including taking responsibility for Local Loop Unbundling (LLU), which enables CPs to rent BT's access lines and to connect them directly to their own networks instead of to BT's.
But there has been little in the way of relaxation of the rules. The main reason for this is that Ofcom can, under EU Law, only make changes of that kind following a thorough and objective review process. In principle, of course, this makes it pretty meaningless to include it in a deal. So either the review process is not as thorough and objective as it might be, or the market has changed anyway (the previous review was done in 2003), or (Ofcom's preferred explanation) functional separation has been a rip-roaring success in promoting competition.
So what about the other two consultations? Well, a handy safeguard for a regulator withdrawing regulation from a retail market is to keep a steady eye on the upstream market. In other words, a vertically-integrated firm like BT that sells both to end customers and to its competitors for those customers must not be allowed to hamstring those competitors with unfair practices when it sells to them. Hence the reviews of wholesale narrowband markets and of the charges that BT makes for those wholesale network services. In general, Ofcom sees increasing competition there also and proposes significant relaxation of the controls.
Brief summaries of what is proposed in the consultations below (usual devil-in-the-detail caveats apply):
Retail market review:
- BT no longer has Significant Market Power (SMP) in retail calls or lines
- Except ISDN, but who cares about that?
- So no more retail price caps
- And BT is free to bundle telephony with broadband, IPTV, or whatever.
Comment: This looks on the face of it like Ofcom straightforwardly delivering its side of the bargain. But Ofcom is a regulator, remember, so it's not quite that simple. In particular, Ofcom reminds us that the question of universal service remains separate from that of remedying the effects of market power. Which it is in principle, but in practice the existing retail controls were concentrated on the bottom 80% of the market and anyway the justification for universal service obligations is that the market (i.e. competition) is failing to deliver what the regulator wishes it would do for some portion of the population.
Wholesale market review:
- BT no longer has SMP in the transit and local-transit markets (which are now to be considered all one thing)
- But it does have SMP in call origination and termination and all CPs with access networks have bottleneck SMP in termination
- BT will no longer be required to offer Carrier Pre-Selection (CPS) or Wholesale Line Rental (WLR) in line with detailed and prescribed Functional Specifications. We think this could come as a bit of shock to some customers of those services!
Network charge control (NCC) review:
Comment: The transit market is about carrying calls from one network to another. Local transit is where this involves a local exchange - one to which local lines are connected. This is the telephone network equivalent of motorways and major roads, where competition can most easily take root, because the traffic is already bulked up.
By contrast, collecting calls from and distributing them to local lines (call origination and termination) is less amenable to competition and, in practical terms, if you call me, your phone company will ultimately have no option but to pay my phone company to connect the call to me - a bottleneck, whether my phone company is large or small.
Of the various ways that have been devised for getting around the problem of getting competition into local networks, CPS and WLR are relatively cheap and easy for anyone wishing to offer a competing service to adopt. They involve using the incumbent operator's, in this case BT's, network to originate calls and provide line rental, respectively. CPS was only introduced in the UK in 2000 and did not really start to be a usable proposition for two or three years after that and WLR got going even more recently. However, Ofcom prefers LLU, because it drives competition deeper into the network, to borrow one of their favourite phrases. CPs have to invest more money and expertise to get it to work and they have more scope to make their service different and perhaps margin to compete on price. Since Ofcom find that CPS and WLR are mature services, they propose that detailed prescription is no longer warranted at the wholesale level.
Does this mean that the significant numbers of CPs still relying on CPS and WLR will find their business models obsolete overnight? We doubt it. For one thing BT has undertaken to provide equivalent products using its 21CN next generation network and Ofcom regards these new services (including Wholesale Voice Connect - WVC - which provides the equivalent of CPS and WLR, together with call termination) as being adequate replacements. It is also probably preferable for BT to keep its networks gainfully loaded with traffic, as CPS and WLR will tend to do and LLU will not. Perhaps most importantly, it might be regarded as a Litmus test of Openreach's independence that it should continue to meet demand from its customers without being obliged by the regulator to do so.
- Price caps retained for call origination and termination, interconnect services (links, tie cables, work done and all that) and PPP (product management and planning), though the latter is RPI+0 to RPI+6.5, which is both pretty wide and a bit of victory for BT, on the face of it, since Ofcom and the OLOs have had a bit of a thing about this rather nebulous and overhead-ish category since whenever and Ofcom have had a new prod at it.
- No price caps on local-tandem and single transit (ST) - double + transit, involving several network hops, was already uncapped from last time around. So ST has gone from RPI-11.5 to nothing in one go, it seems - not exactly steady-hand-on-the-tiller stuff, some might argue.
Comment: This pretty much follows from the findings of the wholesale market review. However, a key linkage that remains to be made is with Ofcom's Mobile Sector Assessment (MSA), which will encompass potential changes to the charges made for terminating calls on mobile networks.
