A regulatory perspective on FTTx deployments

1. A regulatory perspective on FTTx deployments Chinyelu Onwurah, Head of Telecoms Technology, Ofcom 19th June 2007 FTTx Summit

2. The UK is witnessing significant private sector investment in faster broadband access • 2,210,000 local loops unbundled • UK DSL allows 2Mbps to up to 97% of homes • UK LLU operators are launching services up to 24 Mbps • Cable rolling out 10 Mbps services • BT launched nationwide 8Mbps ADSL Max service - 6Mbps to ~60% of homes • Current DSL and cable deployments are meeting consumer bandwidth demands Awareness of Connection Speed Source: Ofcom research February 2007

3. UK DSL: over 99.9% Cable: 46% LLU: 67% Scotland DSL: 99.9% Cable: 37% LLU: 39% NE DSL: 100.0% Cable: 47% LLU: 71% Y&H DSL: 100.0% Cable: 42% LLU: 69% NW DSL: 100.0% Cable: 51% LLU: 90% EM DSL: 100.0% Cable: 52% LLU: 70% Wales DSL: 100.0% Cable: 23% LLU: 32% WM DSL: 100.0% Cable: 56% LLU: 75% SW DSL: 100.0% Cable: 34% LLU: 40% Broadband take up and availability Broadband take-up London DSL: 100.0% Cable: 61% LLU: 100% SE DSL: 100.0% Cable: 42% LLU: 67% Broadband availability Base: All adults 15+/all SMEs Source: Ofcom research 2006

4. UK broadband market today Broadband prices over time Broadband lines by headline download speed Source: Ofcom

5. Current Broadband Cable Modem 8Mbit/s or more DSL More than 4 but less than 8Mbit/s DSL More than 2 but less than 4Mbit/s Fibre More than 1 but less than 2Mbit/s ADSL2 Less than 1Mbit/s Exchange Fibre ADSL2+ Fibre Fibre Fibre VDSL Fibre Cable Docsis 3 So what happens next? Maximum obtainable DSL speeds

6. Next generation core and access network investment is gaining speed within Europe KPN proposes FTTC Telenor NGN core TDC FTTC / VDSL BT, C&W, Thus NGN core Deutsche Telekom FTTC / VDSL Belgacom FTTC / VDSL Telekom Austria NGN core France Telecom NGN core Swisscom FTTC / VDSL France Telecom, Illiad, FTTH trials Telecom Italia IP core upgrade Source: EC, operator announcements

7. The economics of access fibre deployment differ by market Drivers for access NGN deployment • End to end infrastructure competition • Limited opportunities for DSL evolution • Pay TV opportunities • Non-availability of unbundled DSL • Government led supply side strategies UK loop lengths are shorter than those in the US Source: Analysys, various

8. Regulatory principles • Promote competition at deepest level where it will be effective and sustainable • Deliver equality of access beyond those levels • Withdraw regulation at other levels • Promote a favourable climate for efficient investment • Varying regulatory solutions for different products and geographies • Create scope for market entry • Light touch regulation elsewhere in communications value chain

9. Questions for this session • Promote competition at deepest level where it will be effective and sustainable • Deliver equality of access beyond those levels • Withdraw regulation at other levels • Promote a favourable climate for efficient investment • Varying regulatory solutions for different products and geographies • Create scope for market entry • Light touch regulation elsewhere in communications value chain

10. Promote competition at deepest level where it will be effective and sustainable • Deliver equality of access beyond those levels • Withdraw regulation at other levels • Promote a favourable climate for efficient investment • Varying regulatory solutions for different products and geographies • Create scope for market entry • Light touch regulation elsewhere in communications value chain

11. Competition at the deepest level where it will be effective and sustainable • 1,600 unbundled exchanges • Price competition (‘free’ broadband offers) • Service innovation Local loop unbundling Results Altnet network DSLAM MDF BT Altnet

12. Where is that point in next generation access networks? Competition needs to… Examples • be technically feasible • be practically feasible • have the prospect of being effective and sustainable • maximise scope for innovation • duct sharing • sub-loop unbundling • fibre unbundling at the exchange • bitstream access • ….and others too

13. Duct sharing • civil works around 70% of deployment cost But… • BT’s duct network unmapped and incomplete • very significant practical challenges • scope for innovation in cabling

14. Sub-loop unbundling • moves competition in infrastructure closer to customer Sub-loop unbundling But… Point of interconnection Cabinet • is it practical to have competing infrastructure at this level? • is effective competition likely to be sustainable? mini MDF Altnet network DSLAM BT Altnet

15. Fibre unbundling at the exchange Fibre unbundling • very like today’s local loop unbundling But… • possible for point-to-point fibre • ..but difficult for shared infrastructures (e.g. PONs) • would not need to be at the exchange Altnet network OLU ODF BT Altnet

16. Bitstream access • lack of complexity in wholesale product definition • technically and practically straightforward But… • moves level of infrastructure competition away from customer • risk of reduced competitive innovation in local access

17. Promote competition at deepest level where it will be effective and sustainable • Deliver equality of access beyond those levels • Withdraw regulation at other levels • Promote a favourable climate for efficient investment • Varying regulatory solutions for different products and geographies • Create scope for market entry • Light touch regulation elsewhere in communications value chain

18. Negative Positive Regulation results in inefficient investment Impact of market distortions arising from regulatory policy Regulation deters efficient investment NPV of NGA investments Pre-regulation NPV Impact of regulation Post regulation NPV How may regulation promote a favourable climate for efficient and timely investment in next generation infrastructure? Regulatory policy can distort investment decisions in either direction • Main role of regulator is provision of regulatory certainty, possibly through • Ex ante regulatory forbearance • Sunset clauses on regulatory remedies • Risk adjusted returns • Whatever approach is adopted, it must not distort market conditions such that: • inefficient investments are incentivised • disproportionate regulation deters efficient investment

19. Potential solutions Various solutions, including… • access obligations but no regulatory determined prices • cost of capital specific to next generation access • returns adjusted for a ‘fair bet’ • ‘anchor’ product regulation

20. Next generation access raises regulatory challenges • Providing incentives for efficient and timely investment • Ensuring wide scale availability of high speed data services • Minimising uncertainty on: • future regulatory intervention • expected returns from NGA • Promoting competition • Protecting consumers • Public policy objectives • Legacy regulation and migration

21. Autumn consultation to: • Review • Where we are today • The opportunities NGA presents • The prospects for competition in NGA • Consult on • Public policy issues and challenges related to NGA - is there a need for NGA services?  How should any need be met? • regulatory strategy: what, if anything, should be done to secure investment in NGA?  Once NGA is deployed, how should Ofcom promote competition to achieve consumer and citizen benefit? • what options are there for new regulatory remedies and approaches e.g. duct sharing? • what are the specific regulatory challenges posed by NGA?

22. Questions?chinyelu.onwurah@ofcom.org.uk