Analysys Mason attended a lunchtime briefing organised by the Industry Forum, where Lord Currie, the Chairman of the UK’s converged telecoms regulator Ofcom, took the opportunity to identify key developments since his tenure began in July 2002.
Lord Currie said that Ofcom’s main achievement in the fixed telecoms space was to introduce Openreach in January 2006, in order to ensure equal access to the incumbent’s local access network. According to Lord Currie, the introduction of Openreach has dramatically increased the competitiveness of the UK broadband market. Indeed, data from BT indicates that the number of unbundled local loops rose from 192 000 in December 2005 to nearly 5.1 million by September 2008, boosting the number of broadband subscribers per 100 inhabitants from 15.9 to nearly 30. The success of the network separation model has led to interest from other countries, such as Italy and New Zealand.
However, the telecoms sector is changing rapidly and the regulator cannot afford to ‘rest on its laurels’. One of the main challenges that the regulator faces is the issue of next-generation access, which is difficult to deal with because it is not a legacy asset. BT has committed to a GBP1.5 billion investment programme in fibre-to-the-cabinet and fibre-to-the-home networks, subject to a lenient regulatory framework. While the Ofcom Chairman would not commit to any specifics, he firmly supported the idea that free market economics should meet the demand for next-generation access, rather than public money, which he felt would effectively lead to the re-introduction of a state monopoly ‘through the back door’. Next-generation access would only become a public policy issue in areas where demand could not be met through market dynamics, Currie said. This approach contrasts sharply with the ‘dirigisme’ of Asian countries, such as Japan and South Korea, which currently lead the world in fibre penetration and therefore broadband speeds. Only time will tell which approach yields the best results.
The issue of next-generation access is closely related to an event held this week: a panel discussion entitled ‘Will video kill the broadband star?!’, which was organised by TEN (Telecommunications Executive Network). The panel included representatives from the telecoms (The Carphone Warehouse and Level 3 Communications) and content (ITV) industries. Far from the Internet meltdown scenario envisaged by some industry observers within the next few years, the panellists and an overwhelming majority of the audience felt that both industries would work together to avoid this, through a combination of measures such as investment in network capacity, content delivery networks (CDNs) to bring content closer to the user, and the development of new business models to fund these investments, such as targeted advertising and tiered service levels. Indeed, too much is at stake for both industries, and they cannot afford to strangle an opportunity like online video in its infancy, as the market is expected to move from a predominance of low-value, low-resolution content such as YouTube, to one in which premium content becomes increasingly important. However, this transition will take time, and the representatives from both The Carphone Warehouse and Level 3 Communications felt that the roll-out of ADSL2+ by BT would provide sufficient bit-rates to meet current needs.
