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3. KEY MARKET DEVELOPMENTS SINCE 1980

THE 1984 TELECOMMUNICATIONS ACT

This Act set the framework for a competitive market for telecoms services by abolishing British Telecommunications’ exclusive right to provide services, and by establishing its successor company in the private sector, British Telecommunications plc. It also set a framework for the approval of equipment in the UK. It established the Regulator, the Director General of Telecommunications (head of the Office of Telecommunications, Oftel), and set out the duties of the Director and those of the Secretary of State for Trade & Industry in relation to telecommunications. Key duties of both are to promote the interests of consumers and maintain and promote effective competition.

In the 1980s, only BT and Mercury were licensed to run "fixed link" networks. In the 1980s Mercury started to provide competition to BT, giving consumers a choice and lower prices. This duopoly policy remained in force until 1991, when a comprehensive review led to a realisation of the potential for full liberalisation of the telecommunications market.

THE 1991 DUOPOLY REVIEW

The foundation of the modern liberalised regulatory regime was the White Paper published by the Government in 1991 entitled "Competition and Choice: Telecommunications Policy for the 1990s". It set out a revised policy ending the duopoly in respect of all services other than international services over a company’s own facilities (where competition was not opened up until December 1996). The White Paper encouraged new telecommunications operators to enter the market and allowed some existing operators to offer a wider range of services. In particular the White Paper proposed:

to allow new operators to run "fixed link" networks in the UK;

to license international simple resale on routes where the far-end is equivalently liberalised;

to extend the coverage of class licences;

to allow cable television companies to provide telecommunication services in their own right rather than as the agents of BT or Mercury;

to allow mobile operators to run fixed services, in competition with fixed operators.

These decisions gave added impetus to the growth of competition, which had already been accelerating during the 1980s.

NEW TELECOMMUNICATIONS OPERATORS

A number of new long distance national Public Telecommunications Operators (PTOs) were licensed in the early 1990s, and have since competed successfully with BT. Moreover, cable television operators, who previously had not generally been licensed to provide voice telephony, were now permitted to build their own networks, and have subsequently rolled them out extensively throughout the 1990s.

In 1996, the Government increased the potential for competition in public call box services, by removing the requirement in major PTO operators’ licences, other than BT and Kingston, for a Determination from the Director General before a licensee may commence or cease services. Nevertheless, BT and Kingston remain subject to Universal Service Obligations in this area, in order to ensure the provision of public call box services in more remote locations.

The White Paper also announced that the UK would allow new competition in international services. A number of companies were licensed to provide low-cost International Simple Resale (ISR) services, over leased circuits connected to the public switched network at both ends, to countries providing equivalent freedoms to provide the same service in the opposite direction.

Now, International Simple Voice Resale (ISVR) providers (ie persons who have an International Private Leased Circuit [IPLC] provided to them and are aware of the proportions of traffic passing by means of it in each direction) are subject to a "proportionate return" condition which requires them to provide information to the Director General of Telecommunications on flows of traffic to non-liberalised countries or territories. The DGT has a safeguard power of applying a ratio of inbound and outgoing traffic on such routes if he deems it necessary. International Simple Voice Resale, with its low barriers to entry, has provided rapid competition in the provision of international phone calls with prices falling some 50% in real terms since 1991. Against the backdrop of the progressive worldwide implementation of the WTO Agreement on Trade in Basic Telecommunications, the resale of data services over leased circuits connected to the public switched network at both ends is now completely liberalised.

In 1996 the Government liberalised the market even further by licensing an initial batch of 44 companies to provide international telecommunications services over their own facilities. These licences contain a condition on proportionate return similar to the safeguard power contained in the standard ISVR licences except that it is not a safeguard power but applies automatically to all those countries which are not party to the WTO Agreement on Trade in Basic Telecommunications. The effect of ISR and international facilities liberalisation has reduced BT’s share of the UK market for international calls to about 50%.

In addition the Government said at the Duopoly Review that it would consider on their merits applications to provide international satellite services with connection to the PSN at one end of a call for voice services, and at both ends for data. It has so far licensed 13 companies, including Satellite Information Services, E-Sat, PanAmSat, Incom (UK), Globcast Northern Europe Ltd, Kingston Communications, Data Marine Systems and Teleport London International to offer such services.

CABLE NETWORKS

Throughout the 1980s and early 1990s cable television operators have steadily expanded their activities in the UK. There are now 133 active franchises, awarded by the Independent Television Commission and its predecessor the Cable Authority, covering some 14.6 million homes, roughly two thirds of the population. In 1994 the Independent Television Commission (ITC) embarked on the first programme of new franchising since 1990. The new franchises were offered as Local Delivery Operator (LDO) licences, under the terms of the Broadcasting Act 1990. It is envisaged the total franchise coverage figure will be in the region of 83% of total homes.

The cable systems used to convey cable television can also be used to carry telecommunications services. Therefore, the cable operators have been able to become major new providers of the "local loop", and after 1991 the Government encouraged cable operators to offer telecommunication services in their own right.

The number of cable homes "passed" (ie where the cable operator has run a cable along the street allowing subsequent connection in the home) now stands at 11.5 million and the number of homesconnected (for either TV or telephony, or both) at 3.7 million, with over 3.2 million telephone lines installed. (All figures supplied by the ITC, as of 1 October 1998.)

Hitherto, all cable and local delivery operator licences have been offered on an exclusive basis. Under the terms of "Broadband Britain, a Fresh Look at the Entertainment Restrictions", published on 23 April 1998, operators will be offered the option of offering services on a non-exclusive basis in areas of the country currently unfranchised with effect from the end of 1998. From 2001 operators will be able to compete throughout the country.

MOBILE COMMUNICATIONS

The growth in the mobile telecommunications sector over the last decade has been one of the major success stories in UK telecommunications; the UK has been at the forefront of developing mobile services. Constraints on the availability of radio spectrum for mobile communications have meant that the Government has had to develop a competitive regulatory framework, introducing new services on a competitive basis and giving opportunities to new entrants wishing to bring greater innovation and quality to the consumer.

Mobile Telephony

The most visible area of mobile communications is cellular radio telephony, which supports both car phones and handportable mobile phones. Four companies are licensed to provide services over a total of six networks. Vodafone and Cellnet have one analogue TACS network and one digital GSM network each in the 900 MHz band. One 2 One and Orange each operate a PCN network in the 1800 MHz band.

From the start of cellular mobile telephony in the UK in the mid 1980s until the end of 1993, shortly after the launch of the first UK digital Personal Communication Network (PCN) operator (One 2 One), the number of mobile phone subscribers had grown steadily to a total of 2 million. Since the end of 1993, growth of the mobile phone industry has increased substantially with the number of subscribers multiplying five times over the following five years. The total number of mobile phone users now exceeds 10 million, which represents a penetration level in the UK of over 17%. This growth has included subscribers taking up digital GSM (Global System for Mobile) and PCN services for the first time, together with analogue subscribers switching from analogue TACS (Total Access Communication System) to GSM. By October 1998, over nine million people in the UK had opted for a digital mobile phone service. By 2005 the Government expects all mobile phone customers to be using digital phones. While this is not the highest penetration level in Europe (the Scandinavian countries top the list with levels greater than 40%) the UK is ahead of other major European countries such as France and Germany. The UK is the sixth largest cellular market in the world. Forecasts of whether rapid growth in mobile phones in the UK will continue are of course speculative. Industry projections now suggest there could be as many as 30 million people, a penetration level of 50%, in the UK with mobile phones by 2005, and this could be an underestimate.

The UK took the lead in Europe to develop the standards for digital GSM mobile phones. This ground-breaking development has allowed Europe to establish GSM as the pre-eminent technology for second generation mobile telephony - 80% of all mobile phones sold in the world are GSM phones. We were at the forefront in the world in establishing these second generation networks, again led the world in introducing PCN digital networks, and are now leading Europe in developing third generation mobile telecommunications, known as Universal Mobile Telecommunication Services (UMTS).

Universal Mobile Telecommunications Services - Mobile Multimedia

The UK expects to be among the first to issue licences in Europe for UMTS by auctioning spectrum, and is taking a leading role in developing the standards involved. UMTS will take personal mobile communications into the Information Society of the 21st century and is central to the Information Age. Third Generation mobile phones will provide high-speed data access to all forms of information whilst on the move. Customers will be able to access the wealth of material on the Internet, go home shopping or conduct video conferences or receive services as if they were in their own office. In other words they will no longer be constrained to fixed terminals to receive the full benefits of the Information Society, but able to move freely whilst continuing to receive and send the innovative new tailored multimedia services that the information age will have to offer.

Public Access Mobile Radio

At the end of 1997, Dolphin Telecommunications Limited were licensed to run a national digital Trans European Trunked Radio (TETRA) network in the UK and thus provide further competition to the aforementioned mobile operators. It is expected that their system will be particularly attractive to businesses wanting both conventional mobile telephony services and instant closed-user group communications from the same handset. TETRA technology provides significant improvements in spectrum efficiency for larger public access mobile radio networks, as well as enhancing the variety and quality of services to the user which include advanced speech and data facilities, wide area coverage and greater immunity from interference and eavesdropping. The UK again believes it is leading Europe in advanced mobile technology.

Paging

There are over 720,000 subscriber units (nearly double the 400,000 subscriber base 10 years ago) plus a further 1.3 million CPP (Caller Party Pays) units. The September 1994 launch of CPP in the consumer market has rejuvenated the UK paging market so that predictions of 5.2 million users by the year 2003 are not uncommon. The 720,000 subscribers are shared mainly between 4 national operators: BT, PageOne, Vodafone Paging and Hutchison: all running networks to the Post Office Code Standardisation Group (POCSAG) standard. In addition, Sprintel are running a regional paging network in the London area.

In 1996, the Government launched a competition to identify paging operators to be allocated spectrum to operate the European Messaging Service (ERMES), a harmonised pan-European public paging system which will allow pager users to roam across national frontiers, as can mobile phone users. In addition to BT, PageOne and Vodafone Paging, a new entrant, PageNet UK, was awarded national ERMES licences. Sprintel have also been offered an ERMES licence.

Mobile Data

In February 1992, licences were issued to four mobile data operators - Cognito, Hutchison, Paknet (now Vodafone Value Added and Data Services Limited) and RAM - authorising them to provide a wide range of potentially innovative radio-based data communication services, both fixed and mobile, and fixed infrastructure within their networks. There is no voice capability on the networks. Possible applications include remote meter reading and the transmission of data from a salesman on the road to his office. Following a public consultation, which gave strong indications that another operator could increase consumer choice and benefit users, and a competition, a licence was awarded to Securicor Datatrak in February 1995.

Radio Fixed Access

The UK has provided spectrum for Radio Fixed Access (RFA), which enables operators to offer telecommunication services to the customer via radio fixed links from base stations. Using radio to connect telecommunication services over the "last mile" enables new operators to compete to provide services to end users. Despite the initial promise of emerging competition, the pioneering nature of the technology has meant that progress has been slower than anticipated. Interest in the provision of radio fixed access services continues, however, and it is hoped that a successful and stable market in these services will emerge in due course.

Permitted Development Rights

Under the Town and Country Planning (General Permitted Development) Order 1995 (the GPDO), Telecommunications Code Operators (PTOs with the right to install their own network in line with the provisions of the Telecommunications Code, Schedule 2 to the Telecommunications Act 1984) have the right to carry out certain types of development without the need to apply to the local planning authority for planning permission. Development permitted in this includes the erection of radio masts up to 15m in height. However, such masts are subject to a prior approval system, under which an operator must apply to the local planning authority for a determination as to whether it wishes to approve, within 28 days, details of the mast’s siting and appearance. The local planning authority is able to refuse approval where it considers that the development poses a serious threat to amenity.

The certainty inherent in the GPDO procedure has facilitated the rolling out of alternative network infrastructure in the UK, ultimately to the benefit of consumers through greater innovation and competitively priced telecommunication services. Whilst the Government has committed itself to extending the timescale to 42 days to provide adequate time for public consultation, the commitment to permitted development rights for telecommunications equipment remains.

FULL LIBERALISATION OF PRIVATE NETWORKS

The Duopoly Review led to extending the use of "class" licences, or "general authorisations", and a number of new ones were issued. These licences cover broad categories of activity carried out by a wide range of organisations. Activities covered by a class licence do not need to be individually licensed. No registration procedure or payment of fees is required in order to take advantage of the authorisations granted by the licences.

The Self-Provision Licence (SPL) allows companies and others to set up their own telecommunication systems linking any number of sites up and down the country. All traffic on the system must either originate or terminate with the person running the system and there must be no charge for any telecommunication services provided over the system.

The Telecommunication Services Licence (TSL) allows certain telecommunication services to be offered to others, so long as all equipment is contained on and linking up to no more than 20 separate sets of premises, where a single set of premises must be within a single contiguous boundary under a common management regime.

In September 1996 the Government abolished the mandatory maintenance requirement in the TSL and SPL, which required the licensee to both install call routing apparatus, such as private exchanges, connected to the public network, and subsequently to keep the apparatus maintained, using a Designated Maintainer. The improved reliability of modern equipment means that routine maintenance is now seldom necessary. This deregulation should produce a more competitive environment for the provision of maintenance services and promises better value for money for the user.

The satellite services class licence allows the running of satellite transmit and/or receive terminals for the provision of a wider range of services, provided that the satellite transmitting and receiving terminals are not connected directly or indirectly (eg through a private leased circuit ) to the public switched network (PSN).

Class licences for mobile radio operators allow private companies and public sector organisations to provide services to others on private mobile radio systems and certain other mobile systems.

THE MARKET FOR VALUE-ADDED SERVICES

A wide range of enhanced telecommunication services was developed during the 1980s, termed value- added network services (VANs) and value-added data services (VADs). A substantial market developed for these services, often driven by the need for computer systems to communicate with each other via telecommunications networks. The UK has one of the largest markets for these services in Europe. More recently convergence has led to a blurring of the divide between voice and data services and the single term value-added services (VAS) is now in general use.

Examples of these services include voicemail, personal numbering, messaging services such as e-mail and voice mail, videoconferencing and information services.

The UK Government took early steps to liberalise the market for value-added services. The BT Act of 1981 allowed for independent service providers to be licensed to offer VANs in their own right. A year later, the Government issued the first licences to such operators. As a consequence, rapid growth in the market for VANs took place from 1982 onwards.

In 1987, the Government issued a class licence allowing the provision of all value-added services throughout the UK. Some important restrictions remained in place, however, including a ban on "simple resale", the routing of messages from the licensee's system onto the public switched network at both ends.

In 1989, the Government decided to liberalise further the provision of all such services. Anyone who wishes to provide such a service was permitted to do so under the terms of the Branch Systems Licence (now replaced by the Telecommunication Services Licence), which permitted simple resale within the UK. The Government has also sought to allow international conveyance of VANs and VADs without additional conditions. Anyone may provide such services from the UK to foreign countries, subject to the overseas regime, and the UK has exchanged letters with the USA, Japan, Australia and Hong Kong clarifying the scope of IVANs (International Value-Added Network Services) which may be provided on a bilateral basis.

THE MARKET FOR TELECOMMUNICATIONS EQUIPMENT

In 1980, BT still had a monopoly in the supply of terminal equipment in the UK, a situation which had lasted for many years; and the choice of products available to customers was correspondingly limited. In that year, the Government decided to open up these markets to competition. An independent body, the British Approvals Board for Telecommunications (BABT), was established, and BT was required to allow connection to its network of any equipment approved by BABT after testing and approval against defined standards. Over 11,400 terminal equipment approvals have been issued since 1982. Some initial fears that this liberalisation could lead to the connection of unsuitable equipment and consequent damage to the network have not been realised.

BABT has been appointed as a notified approvals body. Its experience of operating approvals procedures in the UK liberalised environment is similar to those required in the more recently introduced European regime referred to later in this booklet; this makes it attractive to both UK and foreign companies as a source of approvals. Competition in the UK approvals field has been opened up recently, resulting in the appointment of the British Standards Institute and Lloyd’s Register of Quality Assurance as UK Notified Bodies.

The market for customer terminal equipment has experienced particularly rapid growth as a result of this policy and given the rapid development of telecommunications technology. Customers can now choose from a range of over 4000 items of terminal equipment in a range of styles and colours. Handsets can be purchased from High Street stores for as little as 10.

A restructured UK approvals system was introduced in 1995. This system is designed to provide a major simplification and clarification of the existing national approvals requirements. These simplified National Technical Regulations (NTRs) cover essential requirements and are designed to be consistent with the parallel European regime.

Liberalisation has also had an effect on the markets for network equipment. The competitive structure which has been introduced into the operation of networks has led to more rapid growth in UK markets for network equipment than in other European markets. The commercial purchasing policies of competing network operators have brought lower prices and faster innovation, to the benefit of end customers.

The Government's policy of encouraging more network competition into the UK has already resulted in a significant number of new entrants licensed to operate in the UK market. The introduction of leading edge technology and high levels of intelligence into the networks of the new entrants will mean more opportunity and choice in the procurement of the software components which make up the bulk of the new networks. This again will lead to downward pressure on user prices.

In the next decade there is likely to be a significant move towards convergence of the telecoms, IT and media sectors such that services in these traditionally separate environments will now be conveyed over common network platforms. This will open the door to many UK suppliers wishing to seek business opportunities in the emerging converged markets for networking and application technology solutions.

The Government is continuing to maintain a technology-neutral policy to ensure that all emerging new technologies will be given every chance to compete in an open market environment. It is likely that future network platforms will comprise a wide mix of technologies and it will be important to ensure that they support via open interfaces a diverse range of new applications and other value-added solutions. Opportunities in emerging technology sectors such as Digital Subscriber Loop (DSL), Internet Protocol (IP), and Asynchonous Transfer Mode (ATM) are beginning to materialise and UK suppliers are already positioning themselves to exploit these opportunities in a very fast-moving and changing global environment.

MULTIMEDIA

  • Multimedia means the combination of digital bit-streams carrying still pictures and moving images as well as sound and text to relay information, using for instance CD-ROMs. A key feature is interactivity, allowing two-way dialogue. Nearly all PCs sold today support multimedia applications. According to a recent survey by GfK Homes Online, 38% of the installed base of PCs were CD-ROM equipped and 95% of recent acquisitions had a CD-ROM drive.
  • Multimedia refers to the process of convergence between the telecommunications, IT, broadcasting & publishing industries.
  • Multimedia promises an ‘Information Age’ based on intense use of large amounts of information, offering significant enhancements to competitiveness and quality of life. The use of higher capacity broadband networks is promoting the development of multimedia services.

In multimedia service provision, digitisation is creating new competition, as previously separate telecoms, broadcasting, IT and publishing industries increasingly overlap and converge. The cable companies are a good example, because they provide both broadcast and telephony services. Convergence is increasing at the product level; for example, a video can be seen over a PC as well as over a TV.

The World Wide Web provides a dynamic example of the growth of multimedia. Through the Internet, we can now access information from around the world; we can tour galleries from the comfort of our own homes and listen to music. We can send and receive e-mail messages. About 16% of homes have Internet access; and about 49% of business. At the moment, most people access the Internet through PCs but soon they will be able to connect to the Internet through their TV sets, another example of convergence.

INWARD INVESTMENT

The UK economy has benefited from major inward investment in telecommunications during the last decade as a consequence of the Government's liberalisation policies. The UK is now the preferred location in Europe for internationally mobile investment in telecommunications.

Overseas companies have responded to the opportunities opened up by liberalisation by either establishing or investing in competing telecommunication services in the UK. Many large companies have relocated their headquarters to the UK in order to make the best use of the new cost effective telecommunication services available. Companies who have relocated their overseas service headquarters to the UK include US West and IBM. The UK has benefited from these investment decisions through increased growth, investment and employment. Inward investment has been drawn particularly to the UK mobile and cable television markets. Several foreign companies have invested in mobile radio and radiopaging, including Hutchison Whampoa, US West, Telesystems, Bell South Enterprises, Telecoms Systems Mobiles SA, Bouygues and Swedish Telecom. 10-12 billion will have been spent by the end of the decade in UK cable. Almost 90% of this is inward investment. Foreign companies who have invested substantially in cable include: US West, TeleCommunications Inc, Bell Canada, Videotron, Cox International, Singapore Telecom International, Compagnie Generale des Eaux and Nynex.

The UK telecommunications manufacturing industry is dominated by inward investors and includes eight of the top ten global manufacturers. These companies manufacture a wide range of advanced equipment, which is at the heart of modern telecommunications, and which contributes significantly to the sector’s exports which in ‘97 exceeded 4 billion and was in surplus. Motorola, Nortel, Ericsson and Lucent Technologies (ex AT&T Network Systems) are four major companies which have established Centres of Excellence in advanced technologies and significant R&D facilities which in some cases are the largest outside their home countries.

There is a concentration of world class manufacturers in the mobile communications industry; Motorola, Ericsson and Nokia supply network infrastructure equipment whilst Motorola, Matsushita, NEC and Orbitel (Ericsson) have helped the UK maintain a trade surplus in handsets. Motorola’s cellular handset manufacturing facility in Scotland has benefited from investment of over 100 million and is now the company’s largest manufacturing facility in Europe and second only to the facility in the US

 
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Last revised : Thursday, March 26, 1999


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