The unravelling of the 'unbundled loop'

The recent announcement from AOL and Freeserve that they may take BT to court for discriminating against their broadband internet subscribers is just the latest twist in a bitter dogfight which has done nothing but delay the advent of high-speed internet access. Business Europe investigates.

So far, very little in the roll-out of broadband internet services has gone according to plan. Access to high-speed Asymmetric Digital Subscriber Lines (ADSL), which should by now have spread throughout the country, is in fact patchy and more expensive than originally foreseen.

Internet service providers attempting to enter the market for the first time lay the blame squarely at the door of BT, the UK's former telecoms monopoly.

These upstart companies were supposed to break BT's monopoly by offering innovative telecoms services, including high-speed ADSL internet connections, using BT's telephone lines and exchanges. They accuse BT of deliberately obstructing access to its infrastructure, in a concerted bid to protect its market share.

Subscribers signing up to the new companies' services are connected by BT engineers, although BT is expressly prohibited from taking advantage of this under rules drawn up by telecoms regulator Oftel. AOL and Freeserve on Thursday claimed that BT has in fact tried to edge its new rivals out of the market by preferentially connecting subscribers signing up to its own internet subsidiary, BT Openworld.

A second bone of contention concerns access to BT's 5,000 local exchanges, known in telecoms jargon as local loop unbundling. New telecoms companies, which need to install equipment inside the exchanges in order to channel their services to BT customers, complain that BT has so far opened up only remote exchanges serving a small number of subscribers. New entrants to the market can't make money from these, they argue.

In the past month alone, World Online, Thus, Telewest, and Kingston Communications have all abandoned plans to offer broadband access via BT's network, citing prohibitively high costs. Only a handful of independent companies still intend to offer ADSL services to residential users.

Meanwhile, BT Openworld has had problems of its own. The service launched in August last year after a number of delays. More than 100,000 people pre-registered for the service and BT, beset by technical difficulties, promised to clear the backlog by November. It later moved the deadline to January 7, and new customers still face a wait of up to six months.

Ironically, demand for high-speed internet connection has never been higher, especially among small businesses. Research of some 700 SMEs published by OFTEL last October found that 93% of medium-sized business and 69% of small business are connected to the internet. All of them expressed interest in broadband internet access.

However, ADSL is not the only form of broadband technology available. Cable companies like Telewest and NTL are providing an alternative called cable modem, currently very popular in the USA. The great advantage of cable modem is that since it runs on fibre-optic cables laid independently of BT, it does not depend on local loop unbundling.

Overall we are very committed to broadband. As the second biggest telecoms company in the UK we are ideally placed to back cable modem, explains a spokesman for NTL. We have been investing £1 million a day for five years to build our fibre optics network. Whereas ADSL is BT's broadband offering, our core offering is cable modem.

NTL has launched a business telecommunications division and has increased its focus on the small business market by offering a fixed telephone line, a basic company website and ten e-mail addresses for £12 a month. The package, called Business Essentials, will be expanded later to include mobile telephony and broadband connection.

BT argues that since there is an alternative to ADSL, accusations that it is restricting competition are wide of the mark.

We do not see ourselves as being uncompetitive, operators could choose to use cable modem which is also broadband, said BT spokesman Simon Gordon.

On local loop unbundling, Gordon adds that it is not reasonable of rival operators to expect to cherry-pick the most profitable parts of the market. This is not a cheap business to go into. Operators want to go into the most affluent areas, however we are offering the wholesale at the same price for each customer, he said.

Industry regulator Oftel, which has approved BT's pricing policy, agrees that the cost is considerable: Oftel has set the charges for the unbundling of the loops, and it is a big investment for companies. We are not surprised that some companies do not want to go ahead, said a spokesman.

Under the guidance of Oftel, the opening of more and more local exchanges should gradually make it cheaper for companies to start competing with BT Openworld. However, the continuing regulatory and technical wrangling means that the latest July deadline for opening up 50 of BT's most popular local exchanges is unlikely to be met.

We certainly hope that it will be cheaper in the future. As the exchanges are opened up, companies can put in orders at a later stage. Just because they do not want to now does not rule them out later, said the Oftel spokesman.

The first exchanges to be opened to competition have now been made available. BT expects to have 50% of the country covered by the end of March. However, the country will never be covered 100% as the copper lines can only carry the ADSL broadband three kilometres from the local exchange. This is where cable companies will have the upper hand in the future.

We are looking at how successful the exchanges are. We have applied for 90 exchanges, and then we will look at the technology. We can be more flexible as we have our own cable network already, adds the NTL spokesperson.