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Broadband Britain Divided Over Unbundling (LLU)

Posted: 27th Oct, 2006 By: MarkJ
Point Topic has released an analysis of local loop unbundling (LLU) numbers by BT telephone exchange. LLU allows ISP's to install their own kit in an exchange, bypassing BT's, but it hasn't all been clear sailing:

Compared to France and Germany, the UK has by far the lowest LLU/Total DSL lines ratio. By Jun 2006, 30.2% of all DSL lines in France were local-loop unbundled, in the UK only 6.6%. No wonder then that OFFTA (Office of the Telecommunications Adjudicator) - became preoccupied with the issue, now reporting the monthly progress in LLU.

While minor ISPs over expended on LLU, larger ones have continued reshuffling their ROI calculations without going into the field. Along came Carphone Warehouse with its ‘free’ broadband offer based on LLU. It was prepared to lose literally millions of pounds in LLU to make ‘free’ broadband happen. And, indeed, it did ‘lose’ about £70 million to-date. So how are the other LLU operator doing? This brief analysis presents Point Topic’s findings on who has LLU-enabled how many BT exchanges. How many DSL subscribers - residential a well as business - have been transferred to LLU by Jun 2006? What UK regions are benefiting most from LLU?

Figure 1. Total LLU lines in the UK, Jun 2003 - Sep 2006.

Overall, LLU has reach tipping-point and is now accelerating. In Sep 2006, there were 850,000 LLU lines, compared to 580,000 by Jun 2006. This presents a quarterly growth rate of 46.5%. Over the year, the number of LLU lines grew from its tiny base of 121,000 by over 600%. (Figure 1)

BT’s regional DSL figures show that the progress in LLU is beginning to affect BT’s wholesale business. Slowly, but steadily LLU is beginning to erode BT’s dominance in some areas of the UK. London and Greater Manchester are the two regions in which BT’s share of DSL lines dropped by 5.2% and 0.2% respectively, in Jun 2006. Some of the loss will be due to LLU progress, some to BT customers churning to cable operators.

About 820 of the 5591 BT exchanges in the UK were LLU-enabled by Jun 2006. Much regional variation in the status of LLU prevails. At the top end, 95% of all BT exchanges in London are LLU-enabled. At the bottom end, there are no surprises. Wales and Scotland have seen only 3.0% to 5.5 % of its exchanges being LLU-enabled. The North West (27.5%), West Midlands (22.1%) and South East (16.3%) rank somewhere between these two extremes.

About 48.8% of UK households are within reach of a LLU-enabled exchange and could thus benefit from broadband services shaped and maintained by ISPs, other than BT. This entails opportunities for both side - consumer and operator - in terms of costing and service quality. But it can also go horribly wrong as the recent service failure at Orange Broadband, which left 60,000 LLU customers temporarily without access, highlights.

In terms of migrating DSL subscribers, we estimate that LLU operators have so far focused their activities mainly on London. About half of the 580,000 LLU lines (45%) are in London, with a further 15% in the South East and 11% in the North West.

Figure 3. LLU lines and exchanges unbundled by operator, 30 Jun 2006

By June 2006, the UK broadband market accommodated 12 major LLU operators, and a number of much smaller ISPs for which there is no information available. With some 9% of the 5591 BT exchanges enabled, Bulldog leads the growing field of LLU operators. Tiscali and Orange follow with 218 exchanges LLU-enabled.

Carphone Warehouse (CW) set itself a target of unbundling 200 exchanges by Jul 2006. According to its latest quarterly results, CW hit its target, having unbundled 303 exchanges as of 26 July 2006. A further 215 exchange are to be added soon. AOL with its 100,000 LLU subscribers must have enabled some exchanges, but the exact number is unclear. We reason that AOL may have activated up to 200 of the biggest exchanges in terms of active DSL lines. With the acquisition of AOL by CW, these will be used to boost CW's LLU performance.

By Jun 2006, Bulldog was not only the largest LLU operator in terms of exchanges but also the largest provider of LLU lines in service. About 124,000 broadband subscribers were served through LLU which amounts to an overall market share of 21.4%. But others are catching up fast, noticeably AOL with about 100,000 LLU lines in service, followed by Tiscali and Orange. (Figure 3).

Although pioneering the implementation of LLU and still being the second-largest LLU operator by Dec 2005, Video Network’s Homechoice lost ground and its timely advantage since then. After all, there is always a bigger fish. Tiscali recently announced that it wants to acquire Video Networks which will add another edge to Tiscali’s portfolio and reinforce the consolidation of the LLU market.

Point-Topic's report provides one of the most detailed market summaries for LLU to date and it's well worth reading all of the above text, especially if you don't fully understand the markets mechanics.
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