Boosting business telecoms to meet growing demand for data

Ofcom today proposed measures to meet growing demand for fast data services from UK businesses, mobile operators, internet providers and consumers.

The Business Connectivity Market Review, published today, looks at the £2bn wholesale market for 'leased lines' used by businesses and by mobile and broadband operators to transfer data on their networks. Leased lines also provide vital high-speed links between schools, universities, libraries and other public bodies.

The review proposes to maintain and extend some existing regulation on BT, the major provider of wholesale services in this market. But Ofcom also proposes lighter regulation in the London area, where BT faces greater competition from other providers.

London benefits from a substantial, competitive fibre infrastructure, in a wider geographic area than previously found. This has allowed Ofcom to propose significantly extending the deregulated area for legacy high-speed networks westwards towards Heathrow.

The combined measures are designed to sustain competition and ensure the UK has a backbone of high speed business networks capable of supporting not only companies, but also consumer services that ultimately rely on these networks, such as superfast broadband and mobile video streaming.

For products with speeds up to and including 1Gbit/s, Ofcom is proposing broadly to maintain existing regulation, including charge controls and a requirement on BT to provide access on a strictly non-discriminatory basis.

Outside of London, Ofcom is proposing to regulate very high-bandwidth, wholesale leased line services above 1Gbit/s. BT is proposed to have 'significant market power' in this relatively new market, in all parts of the UK except London and Hull.¹

Meeting explosive growth in demand

These are among several measures designed to ensure the UK's fibre networks keep pace with explosive growth² in bandwidth-hungry applications used by businesses and consumers, such as video streaming, smartphone applications and 'cloud computing'.

Ofcom's other proposals include:

• a less strict form of price regulation on BT's wholesale Ethernet* prices for services up to 1Gbit/s in London, where there is the prospect of greater competition;
• deregulating the market for longer distance legacy leased lines; and
• requiring BT to provide its regulated Ethernet services on the same basis to all retail providers.

A changing market

Ofcom has identified changes in the market for leased lines³ since the last review was completed in 2008. Demand for legacy leased lines based on older technology has declined significantly, with more providers switching to faster, cheaper Ethernet lines.

While speeds are increasing, the cost of network equipment is falling, particularly for lines using Ethernet and 'wave division multiplex' (WDM), a new technology that enables more information to travel over a single strand of optical fibre.

Next steps

Ofcom's consultation seeks to encourage competition in the business connectivity market, and identify how best to sustain critical fibre networks between businesses - which also support a growing number of consumer services.

The consultation, which closes on 24 August 2012, can be found here.

Ofcom expects to publish a statement on its conclusions early next year. Ofcom will outline the prices it proposes BT can charge its customers for these products in the coming weeks.

ENDS

NOTES FOR EDITORS

* Ethernet is a standard for sending data at high speed over networks.

1.      The telecoms operator in Hull is Kcom.

2.      Data from the London Internet Exchange shows that traffic over its network routers, which interconnect the UK's internet service providers, has increased around eight-fold since 2007. The volume of data sent over mobile networks rose 38-fold in the three years to 2010, Ofcom estimated in its Communications Market Review last year.

3.      The Business Connectivity Market Review identifies several regulatory markets for high-speed fibre lines. In particular there are legacy 'traditional interface' lines, a contracting market which still represents the majority of leased lines; 'alternative interface' lines using technologies such as Ethernet, which allow for data transfer rates up to 1Gbit/s; and extremely fast 'multiple interface' lines, which offer speeds exceeding 1Gbit/s.

There are also three distinct geographic markets: the western, eastern and central London area; Hull, where the leased line operator is Kcom; and the rest of the UK.

The review consultation proposes a different regulatory approach in each of these various markets to ensure competition and promote innovation.