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BT Given Regulatory Freedom for Next Gen Broadband Services

Posted: 03rd Mar, 2009 By: MarkJ
Ofcom has officially given BT the regulatory pricing freedom it had been hoping for. The move allows BT to deploy its next generation fibre optic (Fibre to the Premise/Cabinet) based broadband network and price wholesale services without any regulatory intervention.

BT plans to spend £1.5 billion on the programme to rollout fibre-based, super-fast broadband (up to 100Mbps) to as many as 10 million homes by 2012 (news), though such a costly endeavour would have carried too much risk without a change to the existing rules:

Ofcoms Statement

Ofcom has a central role to play in enabling both investment and competition in super-fast broadband. To do this, we will:

  • allow wholesale pricing flexibility to enable returns appropriate to the considerable risks of building new networks, but constrained by the market in the interests of customers;

  • ensure that any regulatory pricing allows investors the opportunity to earn a rate of return that genuinely reflects the cost of deployment and the associated level of risk;

  • minimise unnecessary inefficiencies in network design and build as a result of regulatory policies, while continuing to protect the consumer interest;

  • support the use of new, more flexible wholesale services by BT to offer super-fast services to other service providers and consumers at competitive prices; and

  • safeguard the opportunity for further competition based on physical infrastructure, by facilitating fair opportunities for companies to synchronise their investments with BT’s deployments, should reasonable demand arise, and encouraging network design that takes future potential competition into account.

However, BT will still be required (via Openreach) to offer their new broadband services to other UK ISPs on "equal terms and without favour". To put that another way, BT may now have a lot of regulatory freedom but they can't overly abuse the situation by being too anti-competitive with pricing or service.

The result of this is likely to be that most of BT's initial raft of next generation fibre optic broadband services will probably look very similar, regardless of which ISP is selling them:

BT's CEO, Ian Livingston, said in a public statement: "Today's announcement gives us the green light to push ahead with our £1.5 billion pounds superfast broadband investment plans to reach at least 40% of UK households by 2012."

The operator will use a mix of both Fibre to the Premise (FTTP) and Fibre to the Cabinet (FTTC) fibre optic (FTTx) technology to deliver the service. FTTP is expected to see speeds of up to 100Mbps (possibly 1000Mbps in the more distant future) and will most likely only be used at newer development / building sites.

FTTC is more likely to be used as an enhancement for existing infrastructure, with VDSL2 technology being implemented to solve the last-mile copper wire run to homes. This will initially result in speeds of up to 20 to 40Mbps becoming available, potentially rising to 60Mbps with future enhancements.

Ofcom must now consult on adjustments to BT's legally-binding undertakings, which were first agreed in 2005. The consultation will run until 14th April 2009, at which point the regulator will publish a new consolidated set of undertakings and thus finalise the changes:

Ed Richards, Ofcom Chief Executive, said: “Our message today is clear: there are no regulatory barriers in the way of investment in super-fast broadband; we want to promote investment but also ensure that there is fair and effective competition for the future.”

The regulator is also expected to work closely with all stakeholders to understand the likely scope for private sector investment. This will include a debate about whether or not further action is required to bring next gen broadband services to more people (i.e. rural coverage).

We firmly believe that, sooner or later, fibre optic broadband services will need to be stretched further than the current plans foresee. However such costly work would need some degree of government funding to complete, which is unlikely to materialise beyond token area-specific projects.
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