Regulatory issues raised by access upgrade investment:
where we are in the UK debate
Richard BuddSenior Regulatory, Economist, BT
16 September 2008
Where we are – July 2008 announcement
• Widespread ADSL2+ will ~ double current speeds (up to 24Mb/s)
• 10 million km fibre already, 120,000 business premises have fibre access
• Announced intention for £1.5bn investment in FTTC and FTTP
• Accessible by up to 10 million homes by 2012 ~ 40Mb/s to 100Mb/s by FY 2012
• All fibre based services from BT will be wholesaled to other ISPs - would be world’s most open super-fast network
Planned peak broadband speeds and coverage by country
Source : OECD Telecommunications Database
Peak service rate CoverageOpen access
100 Mbps (FT)
50 Mbps
20 Mbps (ATT)
40 Mbps (Verizon)
100 Mbps(NTT)
100 Mbps(BT)
17% by 2012 (FT)
26% by 2012
27% by 2010 (ATT)
16% by 2010 (Verizon)
40% by 2009 (NTT)
40% by 2012 (BT)
×
×
×
100 Mbps(KT)
96% by 2009 (KT) ×
Major Govt. funding
High Density Population
×
×
×
×
×
×
×
×
×
Note: All countries have a range of speeds
Commercial drivers
• Virgin Media upgrade• Success of 3G mobile “dongles”• Increasing demand for bandwidth from IPTV• 21CN core upgrade …but consumer “willingness to pay” / take-up
uncertain …extent and form of regulation uncertain
- minimise regulatory risk to investment - no RAB in telecoms; not expecting any price
controls
FTTC (Cabinet) and FTTP (Premises)
• FTTC uses copper for the final drop, active equipment in cabinet30-100Mbit/s
• FTTP can be GPON or PTPGPON shares bandwidth from street cabinet
BSG Chairman’s Foreword
•Deployment costs of FTTC nationwide three to four times higher than current gen bband
•FTTP/GPON five times higher again
•FTTP/PTP ~ six times higher than FTTC
Analysys Mason Report for the Broadband Stakeholder Group
Importance of achieving utilisation levels
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
0% 20% 40% 60% 80%
Overall take-up rate
Initi
al s
e-u
p c
ost
s p
er
line
co
nn
ect
ed
(G
BP
)
London >3k lines (a) National
Impact of overall take-up rate on the costs per premises connected nationally and in London for FTTH/GPON ([Source: Analysys Mason]
Regulatory consultations
• Ofcom - Future broadband: policy approach to NGA, September 2007
• Ofcom – NG New Build: Promoting higher speed broadband in new build developments, April 2008
• ‘Future Broadband’ Statement expected mid-September 2008
• Also, European Commission draft Recommendation, mid-September 2008
Future broadband: policy approach to NGA, September 2007, Five Principles
1) Contestability NGA Investment open to all
2) Maximising potential for innovation Focus on competing infrastructure investments
3) Equivalence BT Upstream [Access business] has same products, processes and price for CPs as for BT Downstream
4) Reflecting risk in returnsAnchor product regulation or risk-adjusted returns
5) Regulatory certainty Stability and clarity
2007 Ofcom Consultation - competition can be promoted at many levels and locations through
contestability and innovation
Customer StreetCabinet Local
Exchange
Metro NodeCore Network
Passive Access
Copper or Fibre Fibre
Duct
Fibre
Wavelength
Duct
Sub-loop unbundling
Fibre
Wholesale Access Product
Active LineAccess
Active LineAccess
Active LineAccess
Street cabinet
Local exchange Metro Node Core Network
Copper sub-loop
FibreFibre to the cabinet
Splitter Metro Node Core Network
Fibre
Local exchange
Fibre to the home
Sub-loop unbundling - passive copper line access; appropriate supporting backhaul products
Active line access - high quality, flexible, Ethernet based product; appropriate supporting backhaul
products
Active line access - high quality, flexible, Ethernet based product; appropriate supporting backhaul
products
Two main remedies for market power: sub-loop access and ALA
New build networks - FTTH, no copper access, maybe not BT
• Competition can be promoted by:– Contestability at the point of deployment – Application of appropriate regulations where market
power develops • Consumer protection by ensuring access to
existing services at existing prices • Voice regulation continues, possibly by new
products• Spectre of fragmentation – patchwork of new
build technologies.
Summary table
FTTC FTTH / New build
Mandatory Active wholesale services
Wholesale equivalents
Wholesale equivalents (? Other CPs)
Mandatory Passive
Duct sharing?
Sub-loop unbundling ?
“Dark fibre” ?
Duct sharing?
“Dark fibre” ?
Other regulation
Regulated copper services continue to be offered
Regulation to require “copper equivalent” offer over fibre
Copper Access Regulation
• Telecommunications Strategic Review (TSR) saw limited prospect for competition to “legacy monopoly access infrastructure”
• Various implications:– WACC de-averaged and lower for access network – Some costs removed from copper access services in
2005 as already met by customers• Wholesale copper access price materially below forward-
looking costs (and at utility return)• Fibre to be priced at a premium to copper• Copper regulation will influence fibre returns
Regulatory certainty …
• 2005 TSR unwound 1990s policy towards competition between current generation access
• Concern over aggressive push on “remedies” upstream of the ALA product after any BT investment?
• Business case has long payback
• City reaction mixedat best