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Column Number: 1 Standing Committee E
Tuesday 17 December 2002
(Afternoon)
[Mr. Peter Atkinson in the Chair]
Communications Bill
Clause 69
Permitted subject-matter of access-related conditions
Question proposed, That the clause stand part of the Bill.
4.30 pm
Mr. John Whittingdale (Maldon and East Chelmsford): At the end of the sitting this morning, we were talking about ways of achieving the roll out of broadband. There was universal agreement among members of the Committee that one of our key challenges was to achieve wider access. Another challenge is to try to achieve a more competitive market. In some ways, those challenges may conflict. In other ways, however, it can be argued that achieving a more competitive market may increase the availability and, hopefully, the take-up of broadband.
There has long been discussion that such an increase in availability and take-up can be linked to local loop unbundling, which has been around for some time. However, it is fair to say that not much progress has been made to date. The local loop is, in effect, the pipe between the exchange and the home, and is the final stage of the telecommunications journey. It can be used to deliver various services, and it is envisaged that one way of achieving greater competition will be to open up the local loop—the final stage of the journey—to operators other than BT.
As I said this morning, broadband access may eventually be delivered in various ways, of which ADSL over a fixed wire looks to be the most promising. BT is clearly investing a great amount of money in promoting it. There is also the existing cable network. That is not to say that there are no other potential mechanismsthere is cable, satellite, wireless and local loops. However, in the immediate term, it is fair to say that the mechanism is likely to be fixed-wire delivery.
The purpose of local loop unbundling is to try to achieve a degree of competition in that particular sector of the market. It is unrealistic to argue that we will achieve a competing infrastructure. It would clearly be almost impossible for a new entrant into the market to invest in an entirely new network. It would also be fairly pointless. The sector is now firmly governed by European directives, as are subsequent clauses and a large part of this one.
It is worth noting that the European regulation on local loop unbundling states:
''It would not be economically viable for new entrants to duplicate the incumbent's metallic local access infrastructure in its entirety within a reasonable time. Alternative infrastructures such as
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cable television, satellite, or wireless local loops do not generally offer the same functionality or ubiquity for the time being''.
For that reason, the European Union has attached great importance to the success of local loop unbundling.
It has been argued, particularly by BT, that it is perhaps unfair that it should be singled out to be required to unbundle its local loops. It has pointed out that the cable infrastructure now passes some 12 million homes—about 50 per cent. of all properties—and that the same condition should therefore apply to cable operators. To date, Oftel has felt that it is not necessary to request cable companies to open up access to the local loop, although we need to continue to monitor the situation. Does the Minister envisage imposing such access-related conditions on cable companies in due course?
Michael Fabricant (Lichfield): Does my hon. Friend agree that cable companies have at least invested in the latest technology? They provide services to people's homes by coaxial cable, with all its advantages, rather than by copper twisted pair, which causes all the difficulties with ADSL. The prime difficulty is the limitation of 5.5 km from the main exchange, which has to be provided by a fibreoptic feed. Would it not be preferable if fibreoptic feeds, or at least coaxial cables, were provided to every home, which would then have not ADSL but DSL?
Mr. Whittingdale: Clearly that would be hugely preferable. As we discussed earlier, ADSL represents a considerable step forward on the narrow-band access. However, the speeds that will be possible if we achieve the fibreoptic network to which my hon. Friend refers will be vastly faster and will offer a far greater range of services than even ADSL—
John Robertson (Glasgow, Anniesland): The hon. Gentleman may be unaware that copper wire will give all the necessary service. Fibreoptic is not required. So much goes into it that the cost would be astronomical. It would be far more advantageous to put the money into the copper network.
Mr. Whittingdale: To some extent, it depends what is going to go down the wire. I agree that it is ambitious to expect fibreoptic cable to go to every doorstep in the foreseeable future, however desirable that would be. We shall have to take advantage of the existing network. Fibreoptic cable offers great opportunities for linking exchanges, but I am sure that the hon. Gentleman is right in the case that we are discussing—the final stage of local loops going to each home.
Brian White (Milton Keynes, North-East): Is the hon. Gentleman aware that in countries such as South Korea and Sweden, which have a lot of dark fibre in their ground, the public authorities have invested in it and then opened it up to competition? Is he advocating that the Treasury should allow public service investment in fibre?
Mr. Whittingdale: Given the competing demands on public expenditure, I suspect that if the hon. Gentleman were to talk to the Chancellor he might find that he had other priorities. In due course, the market might supply such investment anyway. However, for now we have to work with the existing position. We are dealing with copper wire in the local loop.
Let us briefly consider the history. For a time, it appeared that the regulator, Oftel, now to be replaced, was trying to encourage the alternative infrastructure. Although it recognised the potential of local loop unbundling, it even talked about building separate buildings next to existing BT exchanges. It concluded that for the time being direct competition to the BT access network would adversely affect the development of competition and would not be in the interests of the UK consumer.
A development in Oftel's thinking took place when the current director general, David Edmonds, took up his position. He suggested that trying to encourage infrastructure competition was unlikely to provide the immediate boost to competition that was desirable, and therefore gave a higher priority to achieving local loop unbundling. His main reasons for reopening that issue were that the European Union had already identified it as a priority and that it would be a way of achieving the rapid expansion of new technologies. In 1999, he announced that BT should be required to permit access to its local loops. A target was then set whereby such access should be achieved by July 2001.
I do not want to spend a great deal of time going through the entire history of the subsequent, somewhat unhappy, negotiations between BT and the alternative providers that sought to take advantage of the new opportunity of gaining access to the local loop through the exchanges. It was initially suggested that they should focus on a limited number of exchanges—the so-called bow wave process—and that was followed by a great argument as to which exchanges should be opened up first. Companies were then invited to apply for particular exchanges.
It was decided that the first exchanges to be opened up should be those where there was a relatively low level of demand—in other words, where there were not a large number of companies asking for access to the same exchange. It can be argued that the consequence of that was that the exchanges that were identified as priorities for opening up were not in the areas where demand was highest. That approach was criticised. Indeed, the Select Committee on Trade and Industry concluded:
''If the first Bow Wave list has now been largely disregarded, the wisdom of proceeding down that route in the first place must be open to question.''
Apart from that false start, there was also criticism of BT and Oftel. Several of the other licensed operators—those who sought to take advantage of the situation—had complained to Oftel that BT was deliberately thwarting the progress of local loop unbundling. Several words were thrown around. Operators complained of BT's ''recalcitrance''. The director general of Oftel said:
''I think there was a series of examples during those months in the early part of—
the introduction of the process—
''when BT were deliberately holding back on information, when BT were not progressing the roll-out of local loop unbundling as fast as we would have wished.''
He went on to talk about ''bitter conversations'' and finally, in a phrase that has been widely quoted, he said that the relationship between Oftel and BT was
''almost trench warfare for much of the summer.''
Certainly, BT was not as accommodating to those who sought to take advantage of local loop unbundling as some would have wished.
At the same time, some operators were critical of Oftel, saying that it should have moved much more quickly and done more to put pressure on BT to open up its exchanges. One company, Thus, remarked of Oftel's interventions:
''many of the steps they took were helpful 'but it is a question of too little too late.'''
The Computing Services and Software Association said:
''It is now evident that Oftel has failed markedly in its quest to have BT provide access to other carriers at the local loop level.''
It went on to say:
''At best Oftel is revealed as an organisation basically powerless to push BT into opening up the local loop. At worst, Oftel will be cited in history as a stunning example of the captured regulator''.
I do not intend to spend my time being rude about BT because it is moving strongly in the right direction, and to some extent we are revisiting the past in examining its history. That history obviously relates to the clause, however, because it is precisely the challenge with which the new regulator, Ofcom, will have to deal in trying to achieve greater progress if the Government still take the view that local loop unbundling is a priority in achieving a competitive market and wider access to broadband, which we were talking about earlier.
4.45 pm
It is noticeable that our record in this area does not compare well with the achievements of our partners elsewhere in Europe. Not long ago, the Financial Timessaid:
''Attempts to foster competition in Europe's local telephone networks have failed, with Britain among the worst offenders in opening up the market.''
Figures produced by the European Competitive Telecommunications Association, which is the telecommunications trade body, reveal that less than 0.01 per cent. of European local loop lines have been unbundled to new entrants. On the scale of the achievement in Britain, whereas the Government had set a target of widespread unbundling, earlier this year out of 29 million lines in the hands of BT some 164 had been unbundled. The figure is a little higher now, but 164 out of 29 million gives hon. Members a good picture of the progress that we have made. That compares with 623,000 unbundled lines in Germany, where unbundling started in 1998, and 40,000 in Denmark. The ECTA also noted that France and Spain have barely got off their starting blocks. The figure in France was 400 and in Spain it was 10.
Because of the difficulty that a number of companies have had in gaining access on fair terms
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to exchanges, the number of companies in the market has fallen dramatically, which is worrying. Originally, some 40 companies were interested in competing in BT's exchanges, but I understand that the present figure is three. It is clear that at the moment local loop unbundling has stalled. Indeed, in some respects it has gone backwards since some lines that had been unbundled have been lost because one of the companies responsible for unbundling, OnCue Telecom, which had unbundled 40 lines, went into liquidation. The number of lines actually fell from 180 about one year ago to about 150.
My conclusion is that local loop unbundling is not really happening. The question for the Minister is whether the Government still regard it as a priority. What does he think that Ofcom can do in order to get it going again? Those alternative operators that still think that local loop unbundling represents a viable commercial prospect say that there are things that could be done to allow progress to be made. They also recognise that Oftel has achieved more in recent months and has certainly begun to chip away at some of the barriers that have been erected.
I do not want to go into the details, but there are options such as co-mingling, unescorted access—which should remove the need for expensive, purpose-built equipment rooms—line sharing, perhaps a compensation payments scheme to incentivise BT to reduce delays, and the cost-oriented pricing of back hall circuits. Those elements should help the process along, but in order to get local loop unbundling really going again, we must remove the remaining cost and process barriers, including pricing of back hall, and gain proper access to BT's operational information systems. Continued intervention from the regulator will be required to achieve that.
I want to take advantage of the opportunity in this debate about access-related conditions to invite the Minister to comment on the Government's attitude to local loop unbundling. Clearly, it is still a requirement under the European directive and, therefore, we must implement it. In the past, the Government have set ambitious targets to achieve local loop unbundling, but we cannot claim that we have made any progress at all towards achieving it. We are essentially stalled.
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