Ofcom - protector or persecutor?

6th October 2006

The media has recently been awash with reports of an increasing digital social divide, with lower income families finding themselves excluded from the prosperous knowledge economy due to a paucity of computer and Internet access.

Ironically it seems that Ofcom, the body set up to regulate pricing and provision of service through rules to protect consumers, is in fact persecuting them by creating a geopolitical divide.

The following opinion piece from Entanet's Chief Operations Officer, James Blessing, was published in Comms Business magazine in October 2006.

Ofcom - protector or persecutor?

Ironically it seems that Ofcom, the body set up to regulate pricing and provision of service through rules to protect consumers, is in fact persecuting them by creating a geopolitical divide.

Ofcom was formed in 2003 to take over the regulation of the communications industry from Oftel and the Radio Authority. In this "new age of convergence", Ofcom's purpose was to "protect the consumer/citizen from the evils of the communications industry". Alas, the Watchman has no Watcher and the Regulator has no teeth!

Harsh words? Maybe, but Ofcom has yet to actually make life better for a single user, whilst its current obsession with Local Loop Unbundling (LLU) will undoubtedly create a metro/country split that will see the rural economy suffer.

LLU - best intentions and all that...

LLU is the enforced programme through which incumbent provider BT must provide access to its exchanges and last mile copper to other service providers. Ofcom's idea was to open up the market to these 'alternative networks' (altnets) who would provide 'differential' services that are (potentially) more efficient, more flexible and more cost effective than BT. The hope was that this would encourage BT to 'pull its socks up', to the eventual benefit of UK PLC.

Ofcom also saw the potential for altnets to provide wholesale services to other smaller partners, thereby enabling true competition at a wholesale level. This in turn would create a vibrant market where the customer could choose from a range of different services to suit their needs. This sounded great until...

Enter 'Openretch'

These noble ideas were laudable as long term goals, but the structure of the incumbent meant that LLU providers really didn't want to have a go without some stability. So, Ofcom stepped into the mire with heavy boots and forced BT to create Openreach, a pseudo company that would operate separately from the rest of the Group. Promptly nicknamed 'Openretch' by the industry.

Openreach was required to provide the UK's communication providers with equivalent access to the local access network.

Ofcom also fixed the price of BT's wholesale products until LLU reached the magical 1.5 million lines, to be followed by a restriction on the amount it can discount its products to 3% until Ofcom 'reviews the situation' in April 2007. Quite how this enables existing BT wholesale provider partners to act competitively during this period remains a mystery. LLU are blatantly focused on price whilst failing to deliver what customers also expect - exemplary customer and technical service. Even when BT is able to reduce its prices, it is rumoured to do so only on LLU exchanges - further disadvantaging non-LLU customers and the partner ISPs that supply them. In the meantime, the LLU's appear uninterested in providing wholesale services to other ISPs. It's possible that Ofcom's strategy will fail to level the playing field at all.

BT/Openreach was also forced by Ofcom to sign up to 'Equivalence of Input', meaning that Openreach would treat the rest of BT as a customer in the same way as any other altnet. So far, however, the move has led to disjointed service delivery to customers, with the setup process becoming over complicated, new customers being left high and dry and BT partners taking the flak.

In it for the short term?

So, whilst Ofcom believed these moves would encourage infrastructure investment by other operators and increase competition to the benefit of customers, many market players remain unconvinced and concerned about the growing digital social divide. A number of smaller providers objected to the fixing of BT's wholesale pricing as, in their opinion, it would distort the market. The evidence so far shows their concerns were justified, with LLU operators rushing in with 'FREE' own-brand bundled (though not particularly innovative) products to capture consumers' purses.

There are other dangers too. Whilst 'free' broadband (a term generating a lot of complaints to the Advertising Standards Authority) sounds great news for consumers, the LLU operators are generally concentrating only on those areas where population density is high enough to achieve a quick ROI (2-3 years at most). Customers connected to one of the 800 unbundled exchanges located mostly in key metropolitan areas can choose from 4-5 LLU providers as well as BT. If not, they're stuck with BT (or one of its wholesale partners if factors such as quality of support is important to them). However, the bad news is that many altnets suggest that they'll sweat their investment when they get to the thousand exchange mark, at which point they'll stop their rollout. Not good news for those Ofcom is supposed to protect.

So what's the answer?

As ever, there's no single solution to the problem. However, if it had the courage, there are steps Ofcom could take to properly fulfill its obligation to consumers, including...

It could allow BT to reduce prices of its wholesale products and enable partners in non-unbundled areas to offer customers equally cost-competitive products.
It could encourage or even force the LLU operators with more than 250 exchanges to provide a wholesale service.
It could detach Openreach from BT Group properly.

Ofcom is about to conduct a review of wholesale broadband access. If UK PLC and its customers are really to benefit from competition in the market, that competition has got to be fair (wasn't that the original objective?). At the moment the LLUs are rubbishing the broadband market by scrapping on price, BT's wholesale partners (and their resellers) are in a stranglehold and customers are simply getting confused and even marginalised. Ofcom needs to act now to balance the competitive scales. If you want to see UK PLC get a national broadband that includes all geographic regions, drop an email to andrew.heaney@ofcom.org.uk and let your citizen/consumer voice be heard.

James Blessing
Chief Operations Officer
Entanet International Ltd