Following the broadband money

Posts Tagged ‘BSkyB

How Ofcom encourages network ‘slum landlords’

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Because Ofcom’s regulations do not reflect the underlying technology change from time division multiplexing (TDM) to statistically multiplexed packet switching, those who control access to network-based services can and do behave like “slum landlords”.

This observation is contained in a response to an Ofcom consultation on how its regulations need to change so as to not discourage shared works, shared facilities or revenue sharing and rather support mechanisms for this.

Consulting firm Predictable Network Solutions (PNS) told Ofcom “The market and regulatory structure that has emerged is one that requires the monopolist to charge ‘rent’, and where there is no other measure than the rent that is charged, the result is a race to the bottom where monopolists become ‘slum landlords’ and fitness for purpose is entirely lost.

“Money is charged for access to the resource, not for the resultant outcome, and this attitude persists along the value chain, so that all the accumulated risk (that outcomes will not be achieved) is dumped onto the final customer.”

PNS said its work revealed “an emerging pattern that points to structural flaws in the UK telecoms market. In our view, these flaws constitute a substantive risk that many of the potential benefits to the UK of robust, reliable, ubiquitous and cost-effective telecommunications will not be realised.”

It ascribed this to Ofcom’s traditional view that telecoms is about “deterministic and centrally controlled” circuits rather than packets. “The created retail services are, essentially ‘purpose-for-fitness’, in that ‘you get what you get’; there is no specification of what is delivered, and it is the end users’ problem to find a way of exploiting whatever it is. It is this divergence of expectation from delivery that is creating large scale (and costly) hazards,” it said.

PSN said the current market structure has led to a focus only on the rate of financial return on capital investment. This has been to the detriment of service outcomes.

“Where there is fitness for purpose in the current system (eg TDM), it is fitness for a historical purpose, with no flexibility that would encourage innovation. A further consequence of this ‘rental’ model is there is no market for concurrent services to the end user.”

PNS said customers can switch access providers, but they cannot switch service providers, for example one delivering reliable streaming video, one VoIP and one general web access.

To reduce the risk of owning a network but no “tenants” (think Digital Region), incumbents had to work at “large scale”, and rip off competitors with high prices (think of the fight between BT and Sky over TV content) for access to the network.

This also affects wholesale customers. PNS noted that mobile network operators need to backhaul LTE traffic from small cells. TDM circuits are too costly, so they need to use DSL. “However, the lack of any guarantee of the transport characteristics of such connections (ie mass market DSL) makes their use in a RAN [radio access network] problematic, as the protocols employed were developed to work over TDM.”

PNS called for “an underlying carrier that can offer services that are appropriately isolated from each other and differentiated and guaranteed performance characteristics. A competitive market can then develop in delivering concurrent services over this infrastructure (including, but not limited to, non-discriminatory internet access).”

PNS recommended a regime where service providers offer a set of services with well-defined, quantifiable and verifiable outcomes. These could be offered equally well by competing entities, and other players could built further layers of service on top of them.

Note: Other responders were Ofcom’s Advisory Committee for Wales, Arqiva, the Mobile Operators Association, Virgin Media, Vodafone, and the Wireless Infrastructure Group.

BT faces price cuts and refunds on unbundled products

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BT will have to change how much it charges for sub-loop unbundling products and may have to refund money for overcharging, according to a draft determination by the UK’s communications regulator Ofcom.

Ofcom’s heavily redacted draft decision, published on 14 June, relates to a dispute filed by Digital Region Ltd and Thales in February this year after BT’s Openreach subsidiary, which levies the charges, turned down a request to reduce the charges.

The charges have long been a bone of contention between BT and its competitors. The competitors have argued that BT inflated the prices artificially to raise barriers to entry .

Communications minister Ed Vaizey has said he would act on evidence of overcharging by BT.

One other company, whose identity was redacted, joined DLR/Thales in the dispute. Rutland Telecom expressed an interest in the case. It was asked for further information but did not respond, and so was not joined in the case.

DLR is an alternative communications service provider to BT in the south Yorkshire region. It sources the operation of its network services to Thales. It rents some of its physical network, such as the wires between the street cabinet and the customer’s home, from BT.

BT charges “connection fees” of £106.62 and £127.61 respectively where the customer buys both voice and broadband from DLR, or either voice or data from DLR with another provider supplying the other service. BT also charges an annual rent of £93.96 for the connection.

DLR/Thales told Ofcom it estimated the real price of the connection fee should be about £50 in both cases, and that the annual rent should be about £82.35.

DLR/Thales said equivalent prices in New Zealand and the Netherlands were about £50 and £27-28 respectively. However, Ofcom said DLR/Thales had not shown why these prices were relevant in the UK. “We consider that in this case…any international comparison will say very little about BT’s compliance,” it said.

All pricing details have been cut out of Ofcom’s draft determination. This makes it impossible to judge both the financial arguments on both sides and Ofcom’s determination.

This matters because many in the industry believe that BT has “captured” the regulator, a point made by the Guardian newspaper last year.

The parties and any other interested parties have until 5pm on 28 June to submit comments to Ofcom, after which Ofcom will make a final determination.


A BT spokesman said, “We are pleased that DRL/Thales primary claim that the SLU connection charge should be reduced to £50 has not be upheld by the regulator.  Ofcom are proposing that BT make some minor adjustments to our SLU charges although we consider these to be unfounded and we will be responding to Ofcom in due course.”

In a separate dispute, Ofcom turned down a complaint by Opal Telecom (part of TalkTalk) and British Sky Broadcasting  (Sky) that they had overpaid Openreach for some local loop unbundling products.

The regulator acknowledged that the overpayment was due to it miscalculating the fee in 2009, but said a refund would not benefit customers or the level of competition in the market.

The Competition Commission found that Ofcom had “materially erred” by underestimating how fast Openreach could become more efficient; that its assessment of inflation of wage and energy costs was incorrect; and that it had made “certain errors” specifying price caps ancillary services.

Ofcom admitted these mistakes meant Opal and Sky overpaid Openreach.

“However we also note our view that Openreach complied with the regulatory obligations which Ofcom had set. We consider that legal and regulatory certainty in conditions set by Ofcom is important,” Ofcom said.

“We acknowledge that the sums sought by Opal and Sky are not in themselves insignificant, but we also consider that in the context of the overall value of the services provided, any harm to competition that arose during the relevant period was limited, and it is not clear that any retrospective repayment now would remove any alleged competition distortion or economic inefficiency.

“If we were satisfied that a repayment was likely to have a positive effect on consumers or competition, either directly or indirectly, this could alter the balance of relevant factors in favour of ordering a repayment. However, we note in this regard our view that, in the circumstances of these disputes, a repayment would be unlikely to have a significant impact (positive or negative) on competition or consumers.”

The parties have until 29 June to reply.