Out of the loop
Dan Roberts examines whether a local telephone monopoly is being opened up rapidly enough to new service providers
Published: September 19 2000 18:52GMT | Last Updated: September 20 2000 04:16GMT
Deep in London's dotcom heartland, a battle has broken out between competing telecommunications groups. All are hoping to bring broadband internet connections to the scores of start-up companies inhabiting the area's warehouse conversions.
British Telecommunications' Clerkenwell telephone exchange is a relatively small building for such an important economic battle. No fewer than 25 different telecom companies have applied for space in the exchange in which to install new broadband equipment.
For now, only BT holds the keys to such local exchange buildings. Its rivals have had direct access to national and international networks for nearly two decades. But BT has jealously guarded its monopoly over the "local loop" - the copper wires connecting homes and offices to local exchanges. By next July at the latest, that monopoly should finally be broken. The British government and the UK telecoms regulator Oftel have set a deadline for BT to give its rivals access to the local loop. In a process known as "local loop unbundling", companies will be able to lease individual copper lines between local exchanges and their customers.
While they could use this access simply to undercut BT's standard telephone service tariffs, this is not regarded as the big prize. BT's new rivals will gain higher margins if they can provide high-speed internet access and television pictures over the old wires. They can do so by adding new DSL (Digital Subscriber Line) equipment at both ends of the line.
The UK is the latest market to enter the throes of local loop unbundling. Regulators in Germany and the US have already forced Deutsche Telekom and the "Baby Bells" - the former state telephone companies spun out of the old AT&T - to hand over the keys to their local exchanges. But as BT and its rivals squabble over the practicalities, some argue that Britain is in danger of falling behind. Other countries planning to go down the same route, such as Italy and Spain, are watching carefully.
The problem is typified by exchanges like Clerkenwell. In densely-populated urban areas, so many new operators want to get in and install DSL equipment that the lack of space is becoming a serious constraint. In Germany, the problem was solved when the regulator stepped in to allocate space selectively. In the US, there have been far fewer restrictions, although many consumers have complained of poor service due to the resulting confusion.
Britain's regulator decided that the best approach was to let the industry decide how to answer such detailed technical problems. But they have so far failed to agree, and BT has given little ground. David Edmonds, director-general of Oftel, on Tuesday announced plans to proceed immediately with open access at only 361 of Britain's 5,500 exchanges.
Mr Edmonds said these were the exchanges where "demand does not hopelessly exceed supply". In practice, this means that less popular rural exchanges - where fewer customers are likely to want high-speed services - will be updated first. The urban hotspots like Clerkenwell will have to wait.
BT is meanwhile proceeding rapidly with its own installation of ADSL equipment without any of the same restrictions. Its ADSL network already exceeds 400 exchanges covering 26 per cent of the UK population. Its boasts that one in three UK households and businesses - and more than half of the UK's current Internet users - will soon be within exchange coverage.
Other operators, such as Freeserve, are allowed to offer wholesale broadband products by leasing capacity, but they suspect they could could do so more cheaply if they could install their own equipment. Rivals claim that this is the true reason for BT's stance, and accuse Oftel of naivete in letting the company do so.
"There is no incentive for the incumbent operator to be particularly helpful here," says John Doherty, a spokesman for City of London Telecom, one of the leading rivals to BT. Colt claims to have had a far better experience in Germany, where it recently applied to install its equipment in 360 exchanges. Within 12 weeks it had received approval from Deutsche Telekom for 130, and expects to hear about the rest shortly.
Investec Henderson Crosthwaite, the investment bank, has warned that Oftel has created a "regulatory vacuum" by not intervening sooner. It estimates that BT is "blacklisting" about half of the exchanges so far surveyed for unbundling by claiming they are unsuitable for the installation of more equipment. "Failure to sort out the uncertainties will lead to a slower take-up of unbundled services from alternative carriers and hold back broadband Britain," says Chris Godsmark, an Investec analyst.
Colt also argues that BT could do more. "It was not that long ago that these exchanges were full of bulky electro-mechanical switches that have since been replaced by far smaller digital equipment. Even if there still isn't room, surely it's not beyond the wit of man to put a Portakabin in the car park, or build a small extension?" says Mr Doherty.
BT insists that its first responsibility is to ensure that the nation's telephone network is not jeopardised by throwing open the doors to all-comers prematurely. Its position was summarised by Sir Iain Vallance, its chairman, in a speech last April. When it comes to the mass deployment of new technology across its network, said Sir Iain, BT "has the unenviable task of restraining over-exuberant children from dashing across the road at will, and ensuring a safe and orderly crossing. That's where experience counts."
Whatever the true motive for BT's caution, Oftel is now drawing up plans to allocate which exchanges are unbundled regardless of what BT and operators want. "It looks like I am going to have to determine it for them. If they don't come together to reach an agreement I will use my statutory powers to intervene," said Mr Edmonds on Tuesday.
He rebuts the suggestion that Britain has failed to learn lessons from the countries that have already gone through local loop unbundling. "I think that when we have got through this messy three months, the UK will have as successful an infrastructure for DSL as anywhere in the world." |
