More Access Competition in U.K.?

Ofcom, the U.K. communications regulator, has been preparing the groundwork for at least a year to allow competitors access to BT (News - Alert) ducts, in an effort to spur more facilities-based competition. Now BT also is proposing that all U.K. ducts be opened to such competition.

 

Ignoring for the moment the implications on contestant business modules, the advantage of using existing ducts, where possible, is a vast reduction in construction cost. By some estimates, about 80 percent of the cost of broadband access facilities comes from civil engineering, including such things as digging up streets and then restoring such facilities to their original condition.

 

U.S. cable operators who began building cable networks in the U.K. were shocked by the high costs of doing so, sometimes because historic preservation rules require that individual cobblestones be replaced in exactly the same locations as they originally were found.

 

Ofcom studies suggests somewhere between 40 percent and 50 percent of existing BT ducts have room for new cables.

 

“Although it’s unlikely to be the silver bullet to get fiber to every home, open access to all ducts, not just ours, might help BT and others extend coverage and so we would like to see a future government support such a move,” says Ian Livingston, BT CEO.

 

As typically is the case, competitors will have to make a “build versus buy” decision. Currently unhappy with the prices they now pay for wholesale use of existing BT capacity, competitors would still have to weigh the costs of leased capacity versus the cost of installing their own new cables.

 

BT might well prefer that no mandatory access be made available, but if that is to be the case, having new wholesale customers at least provides some amount of wholesale revenue. Were competitors to install their own cables, BT would lose that revenue.

 

On the other hand, were all other existing ducts with room to house spare cables made available to all competitors, BT might be able to diversify its own network as well. Capacity likely would be a secondary consideration. The more important angle would be the route diversity BT would be able to create.

 

The problem with leasing capacity or running additional cables in an existing duct is that damage to the duct or the cables impairs service for every service provider using those ducts and cables. That is one reason capacity decisions on long-haul undersea cables now are driven as much by physical route diversity as capacity requirements.

 

Diverse routes would “harden” BT's network, allowing a greater measure of continuity in the event of a cable cut or duct damage, for example.

 

These sorts of business decisions always are shaped in profound ways by government policy. The U.S. experience with robust wholesale requirements suggests lower-cost wholesale access does lead to more competition and a loss of market share for incumbents, but less construction of new facilities (why build when a company can simply buy capacity at reasonable rates?).

 

On the other hand, robust wholesale also means that although incumbents lose retail customers, they gain wholesale, business-to-business customers. U.S. telecom and cable companies have resisted mandatory wholesale policies, though some incumbents in other markets have gone a different route.

 

It does not currently appear that BT will be able to avoid duct access requirements. So its desire for equivalent policies affecting all ducts is in some ways an attempt to make the best of a bad situation. At the same time, BT likely will have to seriously rethink its current tariffs for leased access.

 

That may be the only way to prevent current wholesale customers from deserting in favor of their own facilities.