Regulatory challenges posed by next generation access networks

Regulatory challenges posed by next generation access networks

Issued March 14, 2007

Executive Summary

• BT understands Ofcom's wish to clarify the regulatory position on Next Generation Access networks in order to avoid any regulatory uncertainty deterring potential investment. However, this is clearly very much the start of the debate given that the future demand for very high bandwidth services is unclear and the commercial investment case for widespread NGA roll-out is unproven. Fundamental to this whole debate is the question of future bandwidth requirements and the extent to which NGAs, and what kind of NGAs, are required in the future, and in what timescales.

• As part of this debate, it is important to recognise, as this document does, the specific characteristics of the UK, often ignored in international 'league tables' of fibre investment, including population density, market characteristics (including the extent of multi-channel and pay TV coverage) and the penetration and potential bandwidth offered by broadband over copper.  

• There is a need to distinguish between NGA infrastructure and the very high bandwidth services that may be required in the future. It is important that we look at the regulation of NGA services on a technologically neutral basis. NGA is often assumed to be synonymous with fibre but in reality ever-increasing bandwidths can be offered over copper in conjunction with core NGN investment and other technologies such as wireless will increasingly play a part.

• Without a clear-cut commercial investment case for national roll-out, NGA investment is only likely to take place on a geographic, targeted basis. Going forward, there will be many areas of the country where a number of operators, through a variety of different commercial/funding models, including through public funding, will own some, or all, of the NGA infrastructure. The regulatory framework needs to recognise this and ensure that no parts of the country are foreclosed to competitive supply at all levels of the value-chain, including the retail services available to end-users.  Recognition of the potential for a multitude of localised networks and suppliers needs to be factored into the assessment of market power and remedies or some other mechanism to introduce symmetric regulation to ensure interoperability and connectivity. Similar considerations apply to the Universal Service Obligation.

• We agree with Ofcom that positive externalities need to be identified to justify any public subsidy of NGA, but clearly public funding, in certain circumstances, has a role to play where there is no commercial case for investment. It is important, though, that public subsidy does not undermine existing commercially-based investments. BT agrees with Ofcom that it is premature to think about a 'digital divide' in relation to NGA services until NGA roll-out begins and it is clear what services can only be provided over fibre or other new technologies as opposed to higher speed broadband over copper.

• BT does not advocate regulatory forbearance or regulatory holidays and we therefore support the approach underpinning the Telecoms Strategic Review and BT's Undertakings i.e. equality of access to be provided by owners of bottleneck infrastructure. Indeed, BT believes equivalence is fundamentally required for the take up of NGA services due to the highly competitive and fragmented nature of downstream markets in the UK. However, some other forms of flexibility may be helpful. Initial NGA deployment is likely to be small scale and experimental and Ofcom could take a pragmatic view over the specific detail of wholesale access obligations and retail pricing while operators and investors are exploring options and testing and trialling possibilities.

• BT welcomes the recognition that, in relation to any NGA bottleneck, regulation should reflect risk and provide incentives to invest where commercial outcomes are uncertain and returns cannot be predicted. However, a successful NGA commercial model requires effective demand at the retail level for very high bandwidth services and hence merely allowing a higher return on upstream investment, necessary as it may be, may not be sufficient to guarantee roll-out. New models, such as those involving risk-sharing, need to be explored.

• BT supports the principle of promoting competition at the deepest level efficiently possible. The technical problems and economic challenges arising from duct sharing and sub-loop or exchange unbundling suggest that an EOI bitstream product is likely to offer the best opportunity for sustainable investment in NGA networks and to support competition in NGA services. 

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BT would welcome any comments on the contents of this document. Comments should be addressed to Alan Lazarus by e-mail to alan.lazarus@bt.com.