Market Watch

Ofcom Introduces Regulation on Fibre Rollout


Display Driver IC Forecast


UK telecoms regulator Ofcom has published its review of the wholesale local access market, which outlines its regulatory strategy for ensuring competition and fostering investment in next-generation access networks (NGANs). The report responds to comments from ISPs and other industry stakeholders made in March 2010, the consultation period on the subject.

The review details two key access methods which BT will be required to offer to 3rd party ISPs where it has rolled fibre-to-the-street cabinet (FTTC, enables VDSL) or fibre-to-the-premises (FTTP). BT plans to expand FTTC coverage to 66% of UK homes, and FTTP to 25%, by 2015.

1) Virtual Unbundled Local Access (VULA)
VULA gives 3rd party ISPs a virtual access type, involving no cable or equipment installation in the local network, to supply VDSL or FTTP to end users. The method aims to replicate as far as possible the features of a physical access type, e.g. copper local loop unbundling to offer ADSL/ADSL2+, where ISPs physically re-connect the end user line to their own equipment installed in the local exchange. The aim of VULA is to maximize the flexibility and control that 3rd party ISPs have over the services they can offer to end users, and ensure they can organize the backhaul and core routing of traffic.

Meanwhile the review discarded a mandate to offer physical fibre unbundling, since solutions for this type of access are not yet considered to be cost effective or technically feasible.

Key features of VULA:

  • a local interconnection point within BT's network for 3rd party ISPs (in practice at upgraded local phone exchanges)
  • VULA sold as a standalone product only (not bundled, e.g. with voice)
  • dedicated connection to end user to help guarantee certain throughput
  • 3rd party ISP freedom to control characteristics of services offered over connection (e.g. speed, quality of service)
  • 3rd party ISP control over nature of in-home hardware.

The price at which BT offers VULA access will not be regulated. This is partly due to cost uncertainty, although BT is obliged to give fair and non-discriminatory access and will be subject to general competition policy.

2) Physical Infrastructure Access (PIA)
PIA is designed to make it cheaper, easier and faster for ISPs deploy their own fibre infrastructure by giving better access to BT ducts/chambers and telephone poles. As opposed to VULA, PIA access will be price-regulated, and BT is obliged to publish a reference offer for duct access by January 2011 and May 2011 for poles, with PIA wholesale offers due for launch in June 2011. Regulated duct sharing has already been introduced in a number of countries outside the UK, including France, Portugal and Australia.

Key characteristics of PIA include:

  • duct/pole access limited to the access network which connects end users to local exchanges; access restricted to deployment of broadband and telephony service to end users and sub-loop unbundling backhaul (from end user to local exchange), excluding leased lines, fixed and mobile backhaul (from local exchange/base station to core)
  • duct/pole access open to both telcos and cablecos for installation of fibre as well as other types of cabling
  • implement processes to support cable maintenance (arrangements for timely access to BT physical infrastructure and temporary occupation of additional duct capacity to install replacement cables) and capacity reservation
  • new infrastructure construction: in congested network areas, BT is required to take steps to relieve congestion with 3rd party ISPs paying the capital cost of any new infrastructure required and a rental fee for ongoing maintenance costs; BT is not required to build in extra capacity to its access network to avoid disincentivizing new infrastructure roll-out, rather co-investment arrangement is preferred as a more efficient alternative with those ISPs sharing in capital costs rewarded with lower recurring rental fees.

The review mentions that sub-loop unbundling (SLU), another form of physical access which is already offered by BT to 3rd party ISPs on its FTTC network, will continue to avoid any price regulation. SLU involves the ISP installing equipment in street cabinets, but ISPs are still questioning the economic viability of the model given the high number of street cabinets in which they need to co-locate to offer meaningful service coverage; as such SLU has seen minimal demand up until now.

Analysis
BT has already launched a wholesale VDSL offer in exchange areas where it has rolled out, which the telco will need to adapt in line with the new VULA requirements. Currently, the offer is aimed at existing LLU operators which pay a £6-8 additional access charge on top of the full or shared LLU monthly line fee and which organize the backhaul from the exchange.

In particular, BT will need to give 3rd party ISPs more ability to alter service characteristics of its wholesale VDSL products (e.g. speed), and to hand over control of in-home hardware specification as currently BT specifies which VDSL devices are used, with its own engineers installing them in end users' homes.

Screen Digest foresees VULA as being the key wholesale product driving NGAN deployment in the short term, given the comparatively low upfront costs and high speed with which 3rd party ISPs can offer a widescale service compared to PIA. However, Ofcom expects VULA to act only as an interim solution rather than a long term alternative to physical fibre unbundling, lasting four years or potentially more.

Despite the increased rollout cost and lengthy deployment time of PIA as opposed to VULA, should consumer demand and adoption of NGAN products reach sufficient levels, independent telcos (e.g. TalkTalk, Sky) may see the long-term benefits from reduced ongoing traffic and access fees paid to BT as persuasive factors to invest. Equally, cablecos (e.g. Virgin Media), may well see cost and speed advantages in expanding their footprint by buying regulated PIA products from the incumbent, rather than dealing with local authorities and private companies independently.

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