In the next few weeks, Oftel, the telecoms watchdog, will announce its strategy to open up BT's local loop to competitors. The move is intended to deliver the final blow to BT's monopoly and bring competitive, high-speed internet services to the UK. But will it? According to the Government, affordable, fast internet access is a precursor to the growth of the internet economy. But although UK businesses and consumers are screaming out for internet services and service providers are chomping at the bit to sell them, experts believe Oftel's report is unlikely to change the UK's internet access landscape in the near future. Not only do Oftel's proposals not come into effect until July 2001, but the steps it may take are unlikely to radically threaten BT's position. Scott Moore, senior research analyst at IDC, said: "Whatever Oftel proposes, BT will continue to sit back in its dominant position and users will continue to pay high prices for high-speed internet access." Oftel's strategy is based on its report, Access to Bandwidth: Proposals for Action, released in July. It follows months of consultation with BT, its competitors and other third parties interested in how the UK ramps up the high-speed internet access market. In the report, Oftel acknowledged that if Britain's companies do not have access to cheap, permanent connections, they will be unable to exploit electronic trading. Consumers also need fast, affordable access if they are to embrace e-commerce and video-on-demand. Oftel concluded that BT should be required to permit access to its local loops. "Other telecom providers should not have to be simply the followers of BT," said the watchdog, which put forward five options to open up BT's local loop (see box). According to Oftel, Option 1 of its proposals raises problems with spectral management. Option 3 also has potential difficulties because most DSL (digital subscriber line) access multiplexor equipment does not provide a clean bitstream output. It depends on assumptions about the higher layer services provided such as internet protocol. Option 5, while supported by many consumer groups, is seen as a long-term goal that may evolve from Option 4. BT favours Option 4. "It is the best solution for mass-market high bandwidth," said a spokesperson. "BT is the network enabler and can open it up to the market at competitive rates. It is experienced at managing networks, and service providers can set the price, level of service and management." Weighing up the options Competitors and businesses, however, favour Option 2 - opening up the loop so everyone has physical access. "The local loop should be treated in a similar way to the railways," said Dave Fisher, network architect at Greenalls Pubs and Restaurants. "The network should be accessible to everyone as everyone invested in it; BT only built the local loop with huge funds from the Government." In the unlikely event that Oftel takes a route BT does not favour, the watchdog is confident it will be able to enforce its proposals. "Oftel has BT's agreement at this stage to pursue the option that is deemed appropriate," said an Oftel spokesperson. "Enforcing the chosen option will require modification of BT's operating licence, but if there is any resistance, Oftel will refer BT to the Monopolies and Mergers Commission." Analysts think this is unlikely. "Oftel is being careful not to upset BT. The fact that it has already put BT in charge of rolling out high-speed services until July 2001 suggests it does not want to rock the boat," said IDC's Moore. This has left many of BT's competitors and customers frustrated. "BT is in no hurry to roll out ADSL (asymmetric digital subscriber line) services because it is already raking it in with its leased lines. It is afraid that speeding up the dial-up lines will cannibalise its revenues," said Fisher. BT fiercely denies this. "Our leased lines offer a different level of security. ADSL will not replace them," said a spokesperson. "Businesses and consumers will find new ways of using them while keeping existing lines." But according to Moore, the rollout of ADSL, to upgrade BT's copper local loop to digital speed, has been slow. Deployment began in July. Although 400 exchanges will have ADSL capacity by March 2000 - covering a quarter of the population - this is only a small percentage of the UK's 5,500 exchanges. It will be two or three years before 90 per cent of the population has access to the services. Service providers and analysts fear BT's deployment could be too late to secure the UK's position in the global internet economy. According to IDC figures based on current trends, only 12.3 per cent of UK households will have access to high-bandwidth services by 2003, compared with 24.8 per cent in the Netherlands and 29.1 per cent in Sweden. "The market for services on the local loop is increasing faster than any other telecoms sector because of the internet. Whoever controls the local loop controls the market," said Moore. Alternative technologies BT's pricing has also been called into question. Although Oftel does not propose to control prices for the telco, it has said it should adopt a 'retail minus' approach - offering a wholesale price equal to the retail price minus retail costs. The current trial wholesale price set by BT is £50 per month. Moore predicts the mass market will only go for the service if it retails for £30. Even BT's own ISP, BT Internet, has said it will not be offering the service yet because the cost is too high for SMEs. BT claimed prices will fall as the technology improves. "We hope 75 per cent of the population will be accessing high-speed services in the next two or three years, but it is up to the ISPs to sell the service," said BT's spokesperson. There is certainly no lack of interest in the trials: 150 service providers applied for the 30 available places. BT Interactive could begin to offer it on a trial basis at the end of this month, along with AOL, Microsoft, Freeserve and Easynet, said BT's spokesperson. According to Moore, service providers will need to find ways to subsidise their costs to make the service viable. PSINet and Fibernet, both global internet and telecom service providers, are calling for the circuits to be rapidly modernised. Charles McGregor, chief executive of Fibernet, has said that direct access to the exchanges is the only way to ensure the network is upgraded and competitive services offered. Dave Agarwal, senior communications analyst at House of Fraser, does not see ADSL competing with leased lines. "ADSL technology is simply not an option. Leased lines are expensive but most large companies bite the bullet and budget for them. It is the small businesses and consumers that this hits," he said. If Oftel will not force BT to face competition, the pressure must come from alternative technologies. Other technologies, including wireless and cable, may be 'immature', but given BT's track record and the fact that it will be in control of high-speed rollout until July 2001, there is surely a window of opportunity for providers to exploit. "We do have a fantastic opportunity," said Stephen Rowles, group managing director of NTL. "We are running trials of broadband services in Surrey and Hampshire and plan to launch products and services across the UK early next year." When NTL completes its acquisition of Cable & Wireless, it will own 65 per cent of the urban and suburban cable networks. Rowles accepts that cable is perceived as a TV network, but insists it is geared up for business users. "Consumer TV services just stole the limelight," he said. Greenalls' Fisher thinks the service will only appeal to consumers, and even then does not think it is a credible option. "I live in a rural area and Cable & Wireless said it would take 12 months to get a cable connection," he said. In its report, Oftel acknowledged the problems with cable. In the medium to long term, it said, cable technology will be a competitor, but until then most users will be reliant on telecom services supplied over BT's local copper network. "Cable companies have been slow to launch cable modems and it this is unlikely to change in the near future," said Moore. "Cable is not as efficient for businesses as ADSL because the bandwidth is shared - and therefore not guaranteed." Wireless technology, according to industry experts, is even less of an option than cable. Licences to offer services are not being made available in the UK, which Oftel says is the fault of the Department for Trade and Industry. Riding the e-commerce wave PSINet is considering a launch of services with its wireless partner Winstar. NTL is offering point-to-point local connections using radio frequencies, but wireless services are otherwise thin on the ground. According to Fisher, wireless technology is slow and coverage is too thin to make it a reliable alternative to the local loop. "The digital mobile phone has been out for five years and is only just working now," he said. "I anticipate it will be a long time before fast cheap wireless internet access is a viable option." Which takes us straight back to the local loop. "DSL services will be the best option for businesses," said Moore. "They are cheaper than leased lines and, in the future, will offer the service and reliability businesses demand." The problem is that Oftel's report is unlikely to solve the situation, Moore added: "Oftel could unbundle the local loop at the end of this year." But he admits that is unlikely, even though the likes of Fibernet and Norweb are lobbying to bring the date forward. Oftel itself remains adamant that this is not feasible, which leaves market forces as the only other means of bringing cheap, high-speed internet access into the UK in time to ride the e-commerce wave. "Oftel may have missed unbundling the local loop as a stick to beat BT into rolling out DSL quicker, but the market is capable of forcing competition regardless," said Moore. It is impossible to anticipate what surprises may be in store, he added. "One thing is sure: the UK needs affordable high-speed internet access and I believe that as the market consolidates over the coming months, something will happen to force its emergence." OFTEL'S PROPOSALS TO OPEN UP BT's LOCAL LOOP Option 1 - Layer 0 access (physical medium). Under this option, BT is responsible for the physical integrity of the circuit and no more. The copper pair from the local exchange to the customer is available to other operators. Option 2 - Partial baseband leased circuit. BT provides a leased line between the customer and the local exchange. Option 3 - Bitstream access (Layer 1 digital access). This option provides a partial digital leased circuit service from the customer to the local concentrator site. As DSL modems would be part of BT's system and attached by them, BT would be in full control of the spectral management of the cables. Option 4 - Permanent Virtual Circuit Access.BT retains ownership of the line but allows ISPs access to BT's customers using BT's lines. Option 5 - Indirect access (Layer 4 access). This is similar to Option 5, except that ATM switches provide call-by-call selection of the destination, instead of a permanent association, providing 'switched virtual circuits'.
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