Review of the wholesale broadband access markets

Final explanatory statement and notification - 21 May 2008

Summary

Introduction

1.1 Broadband plays a central role in communications. It is now used by many residential and business consumers to keep in touch, access information and conduct business. Broadband now reaches the majority of households and businesses in the UK and this has been reflected in widespread take-up (there are now more than 16 million broadband connections in the UK). Competition, meanwhile, has seen providers differentiating their service offerings in terms of price, speed, quality and increasingly in terms of product bundles. A healthy retail market is however dependent on a competitive wholesale market or regulation where competition is not yet sufficient. Ofcom needs to ensure therefore that the regulatory framework at the wholesale level is appropriate given the prevailing conditions. This review aims to do that.

1.2 In the 2005 Strategic Review of Telecoms, Ofcom identified that competition based upon infrastructure tends to give the greatest benefits in terms of the mix of lower prices and faster innovation that residential and business consumers want. Ofcom, therefore, considers that competition between networks based on local loop unbundling (LLU) is crucial to maintaining the UK's broadband progress.

1.3 However, as recognised in the 2005 Strategic Review of Telecoms, LLU is unlikely to be successful in all parts of the UK. This means that in some geographic areas there is unlikely to be direct competition between broadband networks. In these areas regulation at the wholesale level is necessary to ensure that consumers can choose between differing retail offers. Conversely, in areas which benefit from competition between networks, Ofcom must seek to remove unnecessary regulation.

Regulatory decision

1.4 Having considered all responses to the November 2006 and November 2007 consultation documents Ofcom is setting out its final decision in this statement. This is summarised below.

1.5 Ofcom has identified asymmetric broadband access as being the product relevant to this review. At the current time products based on ADSL and cable technologies dominate the wholesale broadband access market.

1.6 Ofcom’s analysis of the wholesale broadband access market has shown that competition is maturing at different rates across the UK. In the majority of the UK consumers have access to at least four wholesale broadband providers. In contrast, in some areas competition has not yet developed and consumers in these areas only have access to one wholesale provider. These stark differences in competition have resulted in Ofcom identifying four separate geographic markets:

1. the Hull area; those areas covered by exchanges where KCOM is the only operator. This market covers 0.7% of UK premises.
2. Market 1; those areas covered by exchanges where BT is the only operator. This market covers 16.4% of UK premises.
3. Market 2; those areas covered by exchanges where there are 2 or 3 operators. This market covers 13.7% of UK premises.
4. Market 3; those areas covered by exchanges where there are 4 or more operators. This market covers 69.2% of UK premises.

1.7 Having identified the product and geographic scope of the market(s) Ofcom was required to assess each market in turn to determine whether any operator or group of operators holds a position of significant market power (SMP). Ofcom has concluded that:

• KCOM holds a position of SMP in the Hull area;
• BT holds a position of SMP in Market 1;
• BT holds a position of SMP in Market 2; and
• No operator holds a position of SMP in Market 3.

1.8 Given these findings of SMP Ofcom has decided to impose the following regulatory obligations on KCOM in the Hull area and on BT in both Market 1 and Market 2.

• Requirement to provide Network Access on reasonable request
• Requirement not to discriminate unduly
• Requirement to publish a reference offer
• Requirement to notify charges, terms and conditions
• Transparency as to quality of service
• Requirement to publish technical information
• Requirement to account separately

1.9 Given the finding of no-SMP in Market 3, no ex-ante regulatory remedies will apply in this market. However, Ofcom is requiring a 12 month notice period for customers who have existing contracts with BT, so that they can continue to operate while they make any necessary alternative arrangements.

1.10 All existing regulatory remedies that stem from the previous wholesale broadband access market review will cease to apply.

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