Thursday, June 21, 2012

Ofcom's Business Connectivity Market Review - physical infrastructure access (PIA) considerations

Interesting to see this in the press release announcing Ofcom's latest Business Connectivity Market Review (full details here) this week:
"The Business Connectivity Market Review, published today, looks at the £2bn wholesale market for ‘leased lines’ used by businesses and by mobile and broadband operators to transfer data on their networks. Leased lines also provide vital high-speed links between schools, universities, libraries and other public bodies."
Commentary from ISP Review here; Ofcom's summary also acknowledges the importance of this market to the public sector:
"Leased lines provide dedicated symmetric transmission capacity between fixed locations, and their overall value exceeds 2bn per annum in the UK. They play an important role in business communications services and are used to support a wide variety of applications, both in the private and public sectors."
The full consultation document is huge - almost 900 pages in total. The summary addresses concerns raised previously regarding the limitations of Openreach's duct and pole access products, also known as physical infrastructure access (PIA):
"We have also considered the case for imposing an alternative or additional set of requirements known as passive remedies, such as requiring BT to provide access to its ducts, poles or dark fibre. We are not proposing such passive remedies, because we consider that less intrusive remedies are likely to achieve similar benefits for consumers, while passive remedies would carry significant risks of worse outcomes, both for consumers and for effective competition, including adding costs and encouraging inefficient entry."
The current PIA obligations on BT were imposed following Ofcom's review of the wholesale local access (WLA) market in 2010. However there was much criticism at the time that the scope of the PIA proposals was not wide enough (see this previous post). However, Ofcom do not propose to extend the scope of PIA as part of this review:
"A number of stakeholders argued that we should extend the scope of PIA to include applications in leased lines. Mobile network operators (MNOs) have told us that PIA could help them to fulfil their requirements for backhaul from RBS for 4G services and to address their concerns that the costs of backhaul will escalate as demand for mobile data services continues to increase. Our current view is that if we were to continue, as we do now, to require BT to provide wholesale leased line services rather than access to its passive assets, the industry, including BT, is likely to meet MNOs’ requirements for backhaul services in reasonable timescales, and with improving technical efficiency. We also consider that MNOs’ concerns about the future costs of backhaul could be addressed by price controls which we are proposing to impose on BT."
As well as being crucial for mobile operators, others have argued that extending the scope of PIA is essential  for investment in next generation access:
"Other stakeholders argued that extending the scope of PIA to include leased lines is critical to generate the long-term cash flows needed to justify investment in fixed next-generation access networks. We recognise that, in contrast to the leased lines market, there is potentially insufficient investment in local access fibre to support super-fast fixed broadband services, particularly in areas outside BT’s planned deployment of such services. We noted in our review of the wholesale local access market that PIA could be a more attractive option for deploying new next-generation access networks in such areas. We remain open to evidence that shows that investment in next-generation access networks could be unlocked if PIA could be used for leased lines services, to help us formulate our policy in relation to such investment."
Section 8 of the review considers passive remedies in more detail, with the following summary:
"...we do not consider that we should impose passive remedies to address competition issues in leased lines markets in this review. Our current assessment is that the case for imposing such remedies is weak because:
  • while we recognise that it is possible that passive remedies could improve the prospects for competition generally, our analysis of the cases put forward by stakeholders suggests that the potential benefits that could flow from doing so could to a large extent be achieved by imposing alternative remedies such as price controls on BT’s provision of active wholesale access services.
  • at the same time, we consider that imposing passive remedies in leased lines markets, either in isolation or in combination with active remedies, could carry significant risks of worse outcomes than continuing to impose active remedies alone, and the competition issues we have identified can be effectively addressed with other, less intrusive remedies."
However, as stated above, Ofcom are willing to consider the matter further in relation to extending the roll-out of NGA services:
"Some stakeholders have argued (both at the time, and as we have set our earlier in this section in relation to Fujitsu and Geo) that limiting use of PIA to the WLA market does not allow them the necessary economies of scope and scale to make NGA deployment viable. That is, they argue that if both NGA and business services were allowed, the case for deploying NGA networks would become more favourable. We remain open to any evidence that shows that NGA investment could be unlocked by being able to use PIA for leased lines services, which could help us to formulate our policy in this area."
These statements on PIA are particularly interesting in relation to the European Commission's current consultation on reducing NGA deployment costsOfcom's consultation closes on 24 August 2012 and it expects to publish a statement on its conclusions early in 2013. 

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