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Future broadband - Policy approach to next generation access

Executive Summary

1.1 There are unprecedented changes occurring in the telecoms industry right across the globe. The current networks and technologies, on which most telecoms operators rely, have used the same fundamental elements for decades. These fundamentals are now changing with a move to completely new, “next generation” networks. The results of these changes and the impact they have on consumers will be with us for many years. Ofcom’s approach to these changes sets out to balance the need to remove any unnecessary barriers to investment in the new networks with the need to ensure they deliver positive outcomes, where appropriate by ensuring the continued presence of strong competition.

1.2 When considering next generation networks, they are often logically divided into two separate components, because these have very different implications for operators, regulators and consumers. The first is the backbone or core networks, often simply known as next generation networks (NGNs). There is considerable industry debate already underway on how NGNs will affect telecoms markets in the UK. The second component, next generation access networks (NGA), are formed from the section of the operator’s network which links end customers into the operators’ backbone networks. Last year, Ofcom published a discussion document about next generation access, which set out our view of the most important regulatory issues they raise. We feel the time is now right to present our proposed policy approach to these issues and in doing so, seek to stimulate a broader public debate about next generation access networks.

1.3 The current generation of consumer broadband services were launched in earnest in the UK around the turn of the millennium by BT and the cable operators. These had a slow start, with the services having limited geographic coverage and with the absence of sufficiently strong competition between providers. The regulatory approach to broadband has had an important role in shaping how the market developed. This approach is based on principles which Ofcom established in our Strategic Review of Telecommunications. The most relevant aspects for the broadband market have been:

1.4 Partly as a result of this approach, since its slow start, the market has developed rapidly in terms of competition, coverage and customer take up. Today, over 52% of households in the UK have broadband, up from 16% three years ago[(-1-)], and over 99% can access at least one access network. The average headline speed[(-2-)] of the products delivered to consumers increased three fold in the past 18 months to 4.6Mbps by June 2007. There is a very wide range of products available, covering many different price points, speeds, customer service and bundling options.

1.5 The development of the broadband market is far from complete. In particular, the desire for operators to offer ever faster speeds, and for customers to purchase them, shows no sign of slowing. New high speed services, such as high definition video will place increasing demands on current networks. We are already seeing some upgrades to current cable networks, and they continue to offer the opportunity to deliver very high bandwidths to end customers. At the same time, there is also no doubt that upgrades to copper based broadband networks will continue. However, there is likely to be a point beyond which the today’s access networks will no longer be able to address increasing speed and coverage requirements. Next generation access networks are designed to overcome these limitations and, as with current broadband networks, their deployment will accelerate the development of exciting new services that can take advantage of them.

1.6 Ofcom believes that the deployment of next generation access networks has the potential to be very positive for consumers. We are keen to see investment take place at the right time and in an efficient manner. This will involve removing any unnecessary regulatory barriers which might delay this investment. One important factor to achieve this is sharing our policy framework and clearly setting out the practical options for the regulation of these new networks where ex ante regulation may be appropriate at the earliest opportunity possible. This is a key objective of this consultation.

1.7 Next generation access networks may take many forms. They may be based on upgrades to BT’s existing copper access network or Virgin Media’s cable network, or a completely new deployment of wired or wireless infrastructure, each of which has different advantages and disadvantages. BT has direct copper connections between the exchange and almost every customer premise in the UK. In contrast Virgin’s network covers around half of all households, and offers a shared access network using very high capacity fibre and coaxial copper cables. Wireless networks have obvious advantages for delivering mobile services but new technologies may also have a role in delivering very high speed access over large areas in the future. The organisations that deploy next generation access networks may also vary, and could include: communications providers; utilities; building developers; community broadband projects; other new entrants; and, in some instances, the public sector.

1.8 In the UK, we are seeing the first signs of next generation access deployment, for example the Digital Region project in South Yorkshire and a new housing development in Ebbsfleet Valley, part of the Thames Gateway project in Kent. In some countries, next generation access networks are already being deployed more widely. This has required operators to make risky investments, often relying on the predicted success of the new, untried, products that the networks will support. In each case however, there are commercial, geographical or political factors which are not features of the UK context that have led operators to deploy new access networks. These include:

1.9 It may therefore be that the efficient deployment of next generation access is simply earlier in some other countries than in the UK. We do not yet see evidence that the UK will be significantly disadvantaged economically or socially as a result. It is important that we continue to monitor the situation closely for any new evidence that would change this view. However, we continue to think that promoting investment which is timely and efficient in the context of the UK market is the correct approach.

1.10 We are proposing to achieve the conditions for this investment by adapting the existing principles of contestability, innovation and equivalence that we have used for the regulation of current generation broadband. In addition we think that two further principles will be necessary as we move to next generation access, to reflect the commercial risks and different characteristics of these investments compared to existing access networks, which are largely sunk cost investments. The five principles underlying our proposed approach are:

1.11 The consideration of these principles leads us to several specific remedies that may be appropriate to deal with concerns raised by any future next generation access networks that give their owners significant market power (SMP) in the relevant markets. The most appropriate remedies will vary with the technology used to build the network, but those most likely to be relevant are:

1.12 In order for these remedies to be effective, it is imperative that they are supported by appropriate backhaul products to transit traffic from the access network to competitors’ own core networks. These may take a number of forms and apply at a number of locations within the network depending on the extent to which communications providers own their own infrastructure for the transit of services.

1.13 In addition, as demonstrated by today’s broadband market, all access remedies need to be supported by appropriate and robust processes, for example in provisioning, fault management, maintenance and product enhancement. Effective processes are necessary to ensure that any access remedies are viable for practical use by alternative operators to deliver an effective and sustainable competitive environment.

1.14 Alongside possible future remedies, we have also set out our approach to the evolution of current regulation and potential implications on the deployment of next generation access. Any change to existing regulatory products following a move to next generation access will affect operators who currently rely on them. We will consider factors such as the location and timing of existing and potential future investments in current generation broadband before undertaking any changes.

1.15 Although we are keen to ensure regulation is not a barrier to companies investing in next generation access when it makes sense for them, this investment should not be achieved at any cost. In particular, it should not be detrimental for consumers, for example in having to pay higher prices for today’s services, nor by sacrificing competition. Specifically:

1.16 The principles we have set out are designed to further citizen and consumer interests and the wider benefits for the economy that flow from these, but there are other specific issues that that may result from next generation access deployment and must be addressed. One is the availability of the appropriate information to allow consumers to make informed purchasing decisions about next generation products and services. Current concerns that the headline “up to” speeds of broadband products may not reflect the actual speeds a customer will achieve demonstrate the importance of this issue. Another important concern is that next generation networks may be more likely to be deployed in densely populated areas, hence widening the geographic differences in access to high speed services. The significant uncertainty around next generation access deployment suggests it would be premature to attempt to address this potential problem now, but that we must work with the appropriate agencies and be ready to respond quickly at the appropriate time. Our aim is to secure the wide availability of high speed networks across the UK.

1.17 The first, small scale, commercial deployments of next generation access will occur quite soon as part of planned large housing developments, such as the development project in Ebbsfleet. The new networks deployed to these developments raise very specific policy challenges for Ofcom, especially where these networks and the operators deploying them are covered by existing market definitions and regulatory remedies. We explore the principles we will use to consider these shorter term issues here, and we will address them in detail in a future consultation.

1.18 We believe the deployment of next generation access networks offers important potential benefits for consumers and will represent both a significant investment, and a fundamental change, for the whole telecoms industry. The new networks and the competitive landscape they bring will be with us for many years. We must ensure there is a full and open debate around the many complex issues they raise, and that the policy approaches we have proposed here are appropriate and widely understood by all interested parties.

1.19 Our objectives in undertaking these activities include gathering the views of as many stakeholders as we can, and ensure the evidence base used to determine our regulatory approach is kept up to date. To this end, we are keen to seek the views of a wide range of stakeholders on the issues explored in the consultation. Specifically, we have a number of questions for consideration.

Question 1 When do you consider it would be timely and efficient for next generation access investment to take place in the UK?

Question 2 Do you agree with the principles outlined for regulating next generation access?

Question 3 How should Ofcom reflect risk in regulated access terms?

Question 4 Do you agree with the need for both passive and active access remedies to promote competition?

Question 5 Do you consider there to be a role of direct regulatory or public policy intervention to create artificial incentives for earlier investment in next generation access?

Footnotes:

1.-Ofcom Communications Market Review, 2004 & 2007

2.-The complex relationship between headline speed and actual consumer experience is explored in Section 3

3.-Passive line access refers to wholesale products based on direct access to physical elements of the access network, but does not include any form of electronics. Examples could include: access to ducts; unbundled copper loops; or dark fibre.

4.-Active line access refers to wholesale products that are based on both the active electronics and the physical elements of the access network. Examples include today’s IPStream product offered by BT.

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