|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
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 companys
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
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
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 BTs 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.
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.
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.
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 -
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.
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.
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 masts 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
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
THE MARKET FOR
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 Lloyds Register of Quality Assurance as UK Notified
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
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 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
- 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
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.
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 sectors 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. Motorolas cellular handset manufacturing facility in Scotland
has benefited from investment of over £100 million and is now the companys largest
manufacturing facility in Europe and second only to the facility in the US