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

©Ofcom1 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 Source: Ofcom research February 2007 Awareness of Connection Speed

©Ofcom2 Broadband take up and availability London DSL: 100.0% Cable: 61% LLU: 100% SE DSL: 100.0% Cable: 42% LLU: 67% Broadband take-up Base: All adults 15+/all SMEs Source: Ofcom research 2006 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% EM DSL: 100.0% Cable: 52% LLU: 70% NW DSL: 100.0% Cable: 51% LLU: 90% SW DSL: 100.0% Cable: 34% LLU: 40% Wales DSL: 100.0% Cable: 23% LLU: 32% WM DSL: 100.0% Cable: 56% LLU: 75% UK DSL: over 99.9% Cable: 46% LLU: 67% Broadband availability

©Ofcom3 UK broadband market today Source: Ofcom Broadband prices over time Broadband lines by headline download speed

©Ofcom4 DSL ADSL2 Fibre Current Broadband Fibre ADSL2+ VDSL Fibre Exchange Fibre Cable Modem Fibre Cable Docsis 3 8Mbit/s or more More than 4 but less than 8Mbit/s More than 2 but less than 4Mbit/s More than 1 but less than 2Mbit/s Less than 1Mbit/s So what happens next? Maximum obtainable DSL speeds

©Ofcom5 KPN proposes FTTC Next generation core and access network investment is gaining speed within Europe Deutsche Telekom FTTC / VDSL Belgacom FTTC / VDSL Swisscom FTTC / VDSL TDC FTTC / VDSL Source: EC, operator announcements France Telecom, Illiad, FTTH trials BT, C&W, Thus NGN core France Telecom NGN core Telecom Italia IP core upgrade Telekom Austria NGN core Telenor NGN core

©Ofcom6 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

©Ofcom7 Regulatory principles 1.Promote competition at deepest level where it will be effective and sustainable 2.Deliver equality of access beyond those levels 3.Withdraw regulation at other levels 4.Promote a favourable climate for efficient investment 5.Varying regulatory solutions for different products and geographies 6.Create scope for market entry 7.Light touch regulation elsewhere in communications value chain

©Ofcom8 Questions for this session 1.Promote competition at deepest level where it will be effective and sustainable 2.Deliver equality of access beyond those levels 3.Withdraw regulation at other levels 4.Promote a favourable climate for efficient investment 5.Varying regulatory solutions for different products and geographies 6.Create scope for market entry 7.Light touch regulation elsewhere in communications value chain

©Ofcom9 1.Promote competition at deepest level where it will be effective and sustainable 2.Deliver equality of access beyond those levels 3.Withdraw regulation at other levels 4.Promote a favourable climate for efficient investment 5.Varying regulatory solutions for different products and geographies 6.Create scope for market entry 7.Light touch regulation elsewhere in communications value chain

©Ofcom10 Competition at the deepest level where it will be effective and sustainable Local loop unbundlingResults MDF DSLAM Altnet network Altnet BT 1,600 unbundled exchanges Price competition (‘free’ broadband offers) Service innovation

©Ofcom11 Where is that point in next generation access networks? be technically feasible be practically feasible have the prospect of being effective and sustainable maximise scope for innovation Competition needs to…Examples duct sharing sub-loop unbundling fibre unbundling at the exchange bitstream access ….and others too

©Ofcom12 Duct sharing civil works around 70% of deployment cost BT’s duct network unmapped and incomplete very significant practical challenges scope for innovation in cabling But…

©Ofcom13 Sub-loop unbundling mini MDF DSLAM Altnet network Altnet BT Sub-loop unbundling Cabinet Point of interconnection moves competition in infrastructure closer to customer is it practical to have competing infrastructure at this level? is effective competition likely to be sustainable? But…

©Ofcom14 Fibre unbundling at the exchange Fibre unbundling very like today’s local loop unbundling possible for point-to- point fibre..but difficult for shared infrastructures (e.g. PONs) would not need to be at the exchange But… ODF OLU Altnet network Altnet BT

©Ofcom15 Bitstream access lack of complexity in wholesale product definition technically and practically straightforward moves level of infrastructure competition away from customer risk of reduced competitive innovation in local access But…

©Ofcom16 1.Promote competition at deepest level where it will be effective and sustainable 2.Deliver equality of access beyond those levels 3.Withdraw regulation at other levels 4.Promote a favourable climate for efficient investment 5.Varying regulatory solutions for different products and geographies 6.Create scope for market entry 7.Light touch regulation elsewhere in communications value chain

©Ofcom17 How may regulation promote a favourable climate for efficient and timely investment in next generation infrastructure? 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 Regulatory policy can distort investment decisions in either direction NPV of NGA investments NegativePositive Regulation results in inefficient investment Regulation deters efficient investment Impact of market distortions arising from regulatory policy Pre-regulation NPVImpact of regulationPost regulation NPV

©Ofcom18 Potential solutions access obligations but no regulatory determined prices cost of capital specific to next generation access returns adjusted for a ‘fair bet’ ‘anchor’ product regulation Various solutions, including…

©Ofcom19 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

©Ofcom20 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?

©Ofcom Questions?