Review of the wholesale broadband access markets

Statement Published 03|12|10

Overview

1.1 Broadband is increasingly central to the lives of UK consumers and the success of businesses. It allows consumers to access and interact with a wide range of content and services and allows businesses to exploit new market opportunities and more efficient operating models. Competition has driven the success of the current generation of broadband services. The result has been greater choice, innovation, lower prices and high levels of broadband adoption.

1.2 Competition in the provision of these retail services depends on effective competition at the wholesale level, or, where this is not occurring, effective regulation. Competition at the deepest level at which it is likely to be effective and sustainable, based on investment by competitors in their own infrastructure, is likely to give the greatest benefits in terms of the mix of lower prices and faster innovation that residential and business consumers want. The Wholesale Local Access (WLA) market concerns access to this fixed telecommunications infrastructure - the connection between the consumer and the telecommunications network. It is therefore critical for all fixed line services. We published our conclusions on our review of the WLA market on 7 October 2010.

1.3 The Wholesale Broadband Access (WBA) market sits between the WLA market and the retail broadband market. The WBA market relates to the wholesale broadband products that communications providers (CPs) provide for themselves and sell to each other. It is important for consumers because these services are one of the building blocks of the retail broadband offers that consumers buy. As effective and sustainable competition based on investment in infrastructure develops, further regulation of wholesale broadband services may become unnecessary. However, the market is not yet effectively competitive everywhere and so some regulation in the WBA market continues to be required.

1.4 The increase in the number of consumers using their broadband connections for activities such as downloading or streaming videos and music is beginning to test the limits of current broadband networks. Equally, businesses and service providers are looking to deliver a wider range of content, applications and services over broadband. Super-fast broadband will have a key role in addressing these requirements and thereby delivering significant benefits to UK consumers and businesses.

1.5 One of the main challenges facing Ofcom is to adapt the existing regulatory framework to reflect the emergence of super-fast broadband. In our WLA statement we set out how our decisions in that market aim to establish a framework to promote competition and to support continued investment and innovation in the deployment of Next Generation Access (NGA) networks that can support super-fast broadband services.

1.6 We have taken account of the development of super-fast broadband in our analysis of the WBA market. We have concluded that at this stage we should consider current generation and next generation broadband services to be in the same market, although as the deployment of NGA networks develops it may become appropriate to reflect this evolution through a different approach to the WBA market in the future.

1.7 We have found that there is effective competition in almost 80 per cent of the UK. However, in just over one-fifth of the UK - covered by what we have called Market 1 and Market 2 - we have concluded that there is not sufficient competition and so we have imposed regulation to protect consumers.

1.8 Market 1 is made up of exchange areas in which BT is currently the only provider of wholesale broadband services, whereas Market 2 comprises exchange areas with two significant providers, or with three significant providers where BT's market share is 50 per cent or more. BT has Significant Market Power (SMP) in both of these markets and will be subject to a range of regulatory obligations, including general access and non-discrimination obligations and a requirement for charges to be cost oriented. In Market 1 we have decided that BT should also be subject to a charge control, the details of which will be the subject of a separate consultation.

1.9 We have also concluded that KCOM has SMP in the Hull Area, and have imposed a range of regulatory obligations upon it.

1.10 The aim of these regulations is to enable CPs to purchase wholesale products from the dominant providers at prices that allow them to compete effectively in the provision of retail services.