Ofcom ruling will speed up broadband rollout

20 Oct 2010 View Comments
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Rob Bamforth

Earlier this month, independent regulator Ofcom announced a framework designed to hasten the rollout of super-fast broadband across the UK.

The framework stipulates that BT must offer other internet service providers (ISPs), such as TalkTalk and BSkyB, access to its nationwide infrastructure.

This decision will allow ISPs access to a dedicated virtual link over BT’s fibre lines (virtual unbundling), as well its underground ducts and telegraph poles.

Matt Howett, analyst for business and technology experts Ovum, explained that this outcome had been expected and would be likely to see both BT increase its footprint and alternative operators provide new services.

Rob Bamforth, industry analyst for Quocirca, said that Ofcom’s framework will help encourage further broadband rollout to the “lost middle third of the UK”.

“One of the main problems with the rollout of super-fast broadband is that a third of the country is not commercially viable,” he explained.

The city centres are clearly worthwhile for ISPs, while at the other end of the spectrum remote rural areas may benefit from government funding.

As the middle third fits into neither of these categories, it is most likely to benefit from this new regulation, according to Bamforth, who added: “A greater mix of players and more innovation is required.”

With BT now allowed to price access to its infrastructure independently, there have been concerns from ISPs around whether its pricing might actually prevent them gaining access to the infrastructure.

“Providing access [to BT’s infrastructure] opens up areas of the country not already served by superfast broadband. However, we now need to ensure that the price demanded for access does not limit the next-generation network rollout,” said a Virgin Media spokesperson.

Ofcom insisted that BT will be subject to anti-competitive pricing rules, where transparency will be essential. And Ovum’s Howett argued that this will help keep prices down. He added: “BT’s prices will also be constrained by the wider broadband market [with competition from Virgin and other competitors].”

In addition, there are other factors that Ofcom has yet to address that may still work as a disincentive for many of the smaller ISPs.

There has been almost a decade of dispute over BT benefiting from a significant discounted tax rate, overseen by the Valuation Office Agency (VOA), when rolling out new fibre optic cable. Fibre tax rates are applied when new cable is laid, and an annual rent is charged for every kilometre of fibre that is transmitting data.

ISP Vtesse Networks last year lost a long-running court case against what it argued was a fibre tax setup that favoured BT. Aidan Paul, CEO of Vtesse Networks, said smaller networks are being charged up to 25 times more than BT.

“This is an issue that the last administration didn’t grasp, and the new one is simply pondering,” Paul said. “ISPs won’t increase investment unless the rate issue is resolved. The higher rates act as a serious disincentive, and mean we are heading for a [network] monoculture with just one main provider.”

Another legislative complication is the Electronic Communications Code, which stipulates that aerial broadband – meaning that which is delivered via telegraph poles – can only be issued on a temporary basis; this would prevent smaller ISPs from providing services in this way.

The legislation is currently under consideration by the coalition government, but unless it is changed, access to BT’s telegraph poles may not enhance competition in the way it is expected to. As recently as March this year BT opposed the reversal of this legislation.

To fully encourage and support the rollout of high-speed broadband across the UK, Ofcom may come under pressure to review some of these factors. However, BT is playing an active role in these negotiations and suggests it will continue to do so until it gains a beneficial resolution.

A BT spokesperson said: “Various arguments have been put forward by Vtesse over the many years of its campaign. They have been heard, tested and then rejected by the European Commission, the Lands Tribunal in the UK, and the UK Court of Appeal. In every case the authorities have found that the rating system is being applied fairly.

“We agree that there are challenges with such access, but we will continue to work with the industry to define a suitable product that meets everyone’s needs.”

The government has set a target for all UK homes to have access to at least 2Mbit/s broadband by 2015.

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