1. ©Ofcom The Future of Regulation David Clarkson 30 th November 2005 Consult21 Broadband Working Group

2. ©Ofcom1 Disclaimer The contents of this presentation do not represent Ofcom’s view about the outcome of the forthcoming Wholesale Broadband Access market review.

3. ©Ofcom2 Agenda Overview of Current Regulatory Structure Ofcom’s Strategic Principles Current Products – Natural Selection LLU and FAS Next Generation Bit-stream Possible Future Regulatory Structure Ofcom’s High Level Goals

4. ©Ofcom3 Overview of Current Regulatory Structure LLU DataStream IPStream Geography ex-post ex-ante (Retail -) ex-ante (Cost +) Margin Rule Retail CAct Case Urban Cost + Rural

5. ©Ofcom4 Ofcom’s Strategic Principles Avoid reliance on exploiting arbitrage opportunities Promote competition at the deepest level of infrastructure where it will be effective and sustainable – Where appropriate limit regulation to the ‘deepest’ level only, thus allowing the removal of downstream regulation Accommodate varying regulatory solutions for different products, and where appropriate, different geographies – Where a single regulatory solution does not adequately address all geographies it may be appropriate to have different regulatory solutions in different geographies, rather than ‘stacking’ regulatory solutions along the value chain

6. ©Ofcom5 Current Products – Natural Selection! Geography LLUDSIPS LLU DataStream IPStream UrbanRural

7. ©Ofcom6 LLU and FAS LLU is one of Ofcom’s primary regulatory solutions for promoting ‘deep’ infrastructure competition and where it is effective Ofcom is seeking to reduce/remove downstream regulation, but… Ofcom recognises that the economics of LLU are such that it is unlikely to be effective in all areas – Therefore likely to need an additional ‘downstream’ regulatory solution that compliments LLU – Next Generation Bit-stream? – Ofcom’s preference is for a single additional regulatory solution and this must be effective in all the areas where LLU is not FAS (as currently defined) appears to replicate DataStream (albeit using Ethernet instead of ATM) – It is scale dependent and thus more attractive in urban areas, but this is where LLU is expected to be the preferred regulatory solution – Unlikely to address all areas where LLU is not effective, in which case additional regulatory solution necessary

8. ©Ofcom7 Next Generation Bit-stream In order to be effective in all the areas where LLU is not, it seems likely that any Next Generation Bit-stream product will need to be sufficiently aggregated – Multiple providers will need to share common network resources However there is normally a trade-off between aggregation and control/flexibility (as per IPStream v DataStream) – IPStream is seen as an aggregated (fixed price) product but with limited flexibility – DataStream is seen as a reasonably customisable product but is susceptible to scale economies It seems as though industry discussions, thus far, have accepted that aggregated and dedicated bit-stream products within 21CN will have similar cost and technical characteristics to IPStream and DataStream respectively Ofcom is keen to understand whether this is necessarily the case

9. ©Ofcom8 De-regulate if LLU is effective Possible Future Regulatory Structure LLU Next Gen Bit-stream Downstream (w/s & retail) products Geography UrbanRural Regulate if LLU is not effective EoI

10. ©Ofcom9 Ofcom’s High Level Goals What we would like to achieve – Ensure that CPs have ability to innovate and produce differentiated downstream products – Ensure that the correct incentives exist for CPs to deploy their own infrastructure What we would like to avoid – Regulating multiple margins within a single value chain However, Ofcom does not have all the answers and is looking to industry (inc BT) to come up with options/solutions – What do CPs want? (This is a different question than which of BT’s proposals is best!) – What are the QoS capabilities of NGNs? – There are likely to be trade-offs and as such industry may need to see if a suitable compromise can be found

11. ©Ofcom The Future of Regulation Thank you Consult21 Broadband Working Group