1. Market reviews and Narrowband Internet access Justin Moore Internet Project Manager, Oftel 9 April 2003

2. Overview Background Current regulations Market review proposals for regulation –NTS –FRIACO –wholesale Internet termination

3. Background New regulatory framework comes into effect from 25 July 2003 Undertake market reviews to implement appropriate SMP regulatory conditions, eg –requirement to publish prices –requirement to supply specific products

4. Current Regulation BT supply of NTS and FRIACO BT Internet termination –publish prices –non-discrimination Call origination Wholesale Metered & unmetered Internet termination Retail metered and unmetered Internet access FRIACONTS Wholesale Internet termination products (eg SurfPort, SurfPort24)

5. Market reviews Define relevant markets Analyse market to assess Significant Market Power (SMP) Consider regulatory options

6. Which market reviews are relevant to narrowband Internet? Review of wholesale call origination –consider regulation of NTS and FRIACO Review of unmetered narrowband Internet termination –previous review identified competitive issues in supply of wholesale unmetered

7. Fixed narrowband wholesale call origination NTS and FRIACO proposals

8. Wholesale call origination and local-tandem conveyance Fixed narrowband conveyance Initial view - BT has SMP General SMP conditions –Provision of network access, no undue discrimination, basis of charges etc Supply specific products –IA, FRIACO, NTS etc

9. NTS call origination Origination of Freephone,Special local rate, Special national rate and Premium Rate Services calls Retail operator undertakes retailing of calls on behalf of terminating operator

10. NTS Options Option 1: No specific regulation for NTS call origination Option 2: Regulated retention and annually set retail uplift Option 3: Regulated retention and charge control on retail uplift –3 options for charge control

11. NTS Initial conclusions Regulated retention –promotes competition and innovation in downstream markets –significant benefits to consumers Retail uplift charge control (4 yrs) –avoids costs and uncertainty of annually set charge

12. NTS retail uplift charge control

13. NTS in the Hull area Current unregulated arrangements appear to be satisfactory Introducing regulation may –introduce significant regulatory costs and practical difficulties in billing –risk higher consumer prices Initial view is that regulation would not be proportionate

14. FRIACO Options Option 1: No FRIACO product Option 2: DLE FRIACO only Option 3: DLE FRIACO and unrestricted ST FRIACO Option 4: DLE FRIACO and ST FRIACO with ‘stranded assets’

15. FRIACO Initial conclusions Option 3: Requirement to supply DLE FRIACO and ST FRIACO –necessary to promote competition in unmetered markets –stranded assets no longer relevant –unrestricted ST FRIACO facilitates entry into market

16. FRIACO in the Hull area Currently no FRIACO product Initial view is not to impose FRIACO requirement on Kingston –Not appropriate without reasonable demand being demonstrated Still need to provide network access on reasonable request

17. Review of Unmetered Narrowband Internet Termination

18. Unmetered narrowband Internet termination Jan 02 statement on broader market concluded –BT had market power –competition issues with unmetered rather than metered termination Market review appropriate for unmetered termination

19. Internet termination market definition Unmetered v metered Demand side –limited evidence of switching –unmetered not justified for low users –flexibility verses security Supply side –cost / time to set up FRIACO network

20. Internet termination market analysis Unmetered separate to metered markets –Market shares changed considerably –Evidence of entry/competing services –some countervailing buyer power –BT does not appear to charge a significant price premium

21. Internet termination conclusions BT does not have SMP Although concentrated, initial view is that no collective dominance No SMP means no regulation –need appropriate call origination regulation –can review market again in future

22. Unmetered narrowband Internet termination in Hull Separate geographic market for Internet calls originating in Hull area Initial view : Kingston has SMP –only firm offering unmetered termination and no FRIACO product –its ISP has a large share of retail market

23. Unmetered narrowband Internet in Hull - Remedies Remedies needed to promote retail ISP competition Requirements on Kingston –to provide network access –not to discriminate unduly –publish a Reference Offer –publish charges, and technical information

24. Summary of proposed changes NTS principles remain with charge control to give predictability of costs FRIACO remains, with ST FRIACO limitations lifted No regulation of metered and unmetered Internet termination

25. Questions