NGA

Next Generation New Build - Promoting higher speed broadband in new build housing developments

Issued June 25, 2008

Executive summary

• Today’s regulation assumes a world where the local access network is based on copper and where there is stable demand for known services. As the network is already in place, Ofcom (and its predecessor Oftel) has been able to focus regulation on competition over the network as opposed to incentivising further network investment. Next Generation Access (NGA) presents a radically different world. NGA networks do not yet exist to a significant extent and the nature of new services to be delivered over NGA networks, and consumers’ willingness to pay for them, is highly uncertain. As such, the regulatory priority needs to be incentivising investment in NGA networks.
• Ofcom’s proposals do not appear to reflect these important differences between NGA and copper networks. Ofcom envisages a large suite of regulatory obligations on the NGA provider aimed at promoting competition on NGA networks following deployment, and contains little in the way of providing investment incentives in the first instance. In a situation where the commercial case for investment is challenging, this could have adverse repercussions on investment decisions. For NGA networks to be built, Ofcom needs to place much more importance on incentives to invest. The right regulatory environment for investment is critical to deliver NGA deployment and the resulting consumer benefits.
• Key to this is the need to minimise the cost and complexity of regulatory obligations. Investors also need to be confident that they have the opportunity to earn a proper return for the risks they take. Achieving a more favourable deal for would-be access investors needs to be urgently addressed.
• Ofcom should take a flexible approach to the issue of replicating existing SMP remedies. For example, we believe products such as Generic Ethernet Access – an Openreach Active Line Access (ALA) product – will offer more functionality and flexibility to communications providers than the current Carrier Pre-Selection and Indirect Access products and will achieve the same pro-competitive objectives. These existing remedies should therefore not be carried forward into NGA. Providers with SMP in wholesale local access should not be required to install or maintain copper cable in parallel with fibre solely for the purpose of providing LLU.
• BT believes that active remedies are the best way to achieve effective competition. Passive remedies would not encourage NGA as the potential investors would be deterred by the prospect of ‘cherry picking’ of customers by suppliers unwilling to commit up-front costs. Consequently, we consider that passive remedies are only likely to be appropriate in restricted circumstances. It is especially important that if BT contemplates investing in NGA, it does not have to incur the costs of developing and adopting equivalent products, systems and processes for both passive and active remedies. Unlike many overseas operators, BT is willing to develop with Ofcom an appropriate equivalence regime in respect of suitable active remedies.
• In an environment where a number of providers are likely to be engaged in NGA deployment in different areas, all providers should be mandated to offer wholesale access in order to protect consumers and support competition. To avoid the emergence of ‘islands of technology’, similar standards for wholesale access products should apply to all providers.
• Where there is only a single fibre network, USO should fall on that provider, whether or not this is BT. Legacy USO and General Condition requirements also need to be interpreted and applied pragmatically. In particular, we do not believe it is necessary to mandate battery back-up over NGA as this would significantly increase the cost and complexity of fibre deployment. In addition, there is near universal mobile ownership and widespread use of DECT phones which are themselves battery-powered.
• Any NGA investment is likely to have a long pay-back period. Investors need sufficient confidence that the regulatory framework will not change and undermine the assumptions on which investment cases were built. Ofcom needs to find a way of instilling investor confidence in the stability of regulation over such a period. For example, it should be possible for Ofcom to commit to, say, ten year horizons with periodic review points, with the presumption that the regulatory regime will be stable unless there are specific reasons for change on either the part of the regulator or BT. This approach is common in other regulated industries.

We would welcome the opportunity to discuss our views with Ofcom and other stakeholders.

BT welcomes comments on the content of this document. Comments should be addressed to:

Lorraine Flawn, BT Group Regulatory Affairs Department by e-mail to lorraine.flawn@bt.com.

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