UK COMPETITIVE TELECOMMUNICATIONS ASSOCIATION 10 Fitzroy Square London W1T 5HP W: www.ukcta.com E: info@ukcta.com T: 0870 801 8000 F: 0870 801 8001 1 Executive Summary Business connectivity inputs comprise an important part of the Electronic Communications supply chain. Their place in the market is highly complex and increasingly so. Yet BT s product set remains stuck in a one size fits all approach. BT s business connectivity provisioning and repair performance has been poor for a sustained period. As a result, end users of BCM services have been harmed. It is clear therefore that the current SLA/G regime is relatively ineffective in providing the appropriate incentives on BT to improve performance to an adequate standard. At a high level, weaknesses in the current SLA/G regime are common or similar in nature to most Openreach products not just BCM services such as inefficient resource allocation, insufficient financial incentives to improve performance, gaps and carve-outs such that poor performance is not always redressed through SLG payments and poor record-keeping. More specifically, UKCTA s members consider that Openreach s unchecked scope to change customer delivery dates ( CDDs ) with deemed consent means that often its poor performance does not trigger SLG payments and, as such, Openreach is incentivised to adopt this practice. In this response, UKCTA: provides evidence of Openreach s poor service quality; explains the harm caused to communications providers and their customers and the costs that result; highlights weaknesses in the current SLA/G regime; and proposes some solutions. UKCTA supports Ofcom s work in evaluating the case for passive infrastructure access. Passive infrastructure access would allow competition deeper in the value chain, allowing greater flexibility for CPs to innovate and configure their service to the needs of their customers. Passive remedies have proven successful in delivering competition in several member states. Fundamentally, passive infrastructure allows CPs to operate according to their own economic model, rather than BT s. In other words they would be able to address currently unserved markets (product and geographic) and price more flexibly and in more innovative ways. We do not agree with Ofcom s assessment of the impact of passive remedies on BT s pricing and cost recovery and have seen no evidence that BT would be prevented from recovering common costs were passive remedies to be introduced. The focus should not be specifically about leased lines, but rather, about the removal of a power currently afforded to BT, to restrict the provision of passive access depending on its end use. Leased lines does not adequately define the set of uses for which CPs are currently prevented from procuring passive access. CPs are prevented from using passive remedies for a wide variety of downstream uses.
Passive access remedies would allow CPs to expand their networks efficiently into entirely new areas, and to connect customers in near-net situations. Passive access is about providing on-net connectivity in situations where today, only off-net opportunities are available. Ofcom should avoid implementing restrictions on particular end uses for any passive remedies it may decide to implement. Charges for passive infrastructure should be cost based, recognising its natural monopoly characteristics and the low probability for replicability. A uniform charge would appear to be the most appropriate and pragmatic pricing structure to adopt. KCOM and Virgin are members of UKCTA and reflecting their particular interests, their views on some aspects of the business connectivity market review will differ from the views expressed in this response, particularly in relation to passive access and associated remedies. 2 Passive Remedies Business connectivity inputs comprise an important part of the Electronic Communications supply chain. Their place in the market is highly complex and increasingly so. They cover a range of purposes, from inputs to residential services, data-centre connectivity, and wide-area networking (with highly varying requirements). Forms of business connectivity can be distinguished across many dimensions including, but not limited to: geography, network topology, end use, position in the value chain (or positions in multiple value chains), features, technical characteristics, performance and SLAs. As the demands placed on electronic communications networks become more diverse, so does the set of requirements for different forms of connectivity. Gone are the days where we could say that a leased line is a single homogeneous product such that no circumstances exist where a user would require anything different from a single, standardised product. Yet BT s leased lines portfolio is just that, a one-size fits all solution structured around BT s requirements, network architecture and pricing model. The UK needs to encourage more variation in the types of business connectivity available to suit different purposes and commercial strategies. This is why UKCTA supports Ofcom s work in evaluating the case for passive infrastructure access. Passive infrastructure access would allow competition deeper in the value chain, allowing greater flexibility for CPs to innovate and configure their service to the needs of their customers. The need for investment and scope for differentiation is greater today than it has been in the past because of the increasing fragmentation in modes of usage. Specifically: The growth of many different variants of cloud computing and remote data services The increasing dispersal of business sites requiring integrated connectivity; The growth in demand for data transmission capacity, driven by the increase in access bandwidths delivered by FttX and 4G; and The growth in machine-to-machine (M2M) communications. These are all factors that place greater (and increasingly specific) demands on business connectivity. The challenge faced by CPs is how to configure their services to meet the requirements of their end-users when faced with the limited portfolio of products available from BT. Any service is only as strong as its weakest link (and cannot be cheaper than its most expensive component). Passive remedies have been implemented in a manner that does not limit their use to a particular downstream market in several EU member states. They work, are extensively used and have proven effective in delivering competition across a wide variety of downstream markets. The operational processes and economic models relating to passive access have matured over time, a process that has increased the effectiveness of the remedy in delivering competition. In at least one market (France), passive remedies have allowed the NRA to find certain 1
Market 6 sectors to be effectively competitive and therefore not in need of regulatory intervention: unlike BT, Orange is not required to provide active connections in the backhaul segment of its network. The problems with passive remedies that Ofcom has envisaged in the past (such as compatibility with price regulation of active remedies) have evidently been solved in other markets the coexistence of active and passive remedies operating in Market 6 does not appear to have caused any fundamental problems with arbitrage or cost recovery in practice. We understand one of the key reasons Ofcom has decided against passive remedies in the BCMR in the past, is a concern about the impact on BT's pricing and cost recovery. We understand Ofcom is concerned that it might force an inefficient pattern of cost recovery on active services and/or threaten BT's ability to recover its common costs. We disagree on the following grounds: forcing an inefficient structure of pricing would only be a concern if BT's pricing structure is already efficient (or at least, more efficient than it would be if passive remedies were to be applied). We have seen no evidence that BT's pricing is efficient and some evidence indeed that it is not. Furthermore, we do not see any strong arguments (even in theory) why in the absence of passive remedies, we should expect it to be efficient; we have seen no evidence or arguments that BT would be unable to recover its common costs in a world with passive remedies. The form of passive remedies that UKCTA proposes would include a fair contribution to common costs, as well as a fair return on capital deployed; In order to assess the concerns that have caused Ofcom to hesitate before applying passive remedies in the BCMR, we suggest that Ofcom identifies markets in which one might expect the same concerns to be apparent. Following this, we recommend that Ofcom studies these markets to ascertain whether the concerns about which it warns, are in fact justified. Such markets might include: other countries in which passive remedies exist; situations in the UK in which passive remedies already exist. LLU is one example. "Dark copper" can be (and is) used for multiple downstream purposes and has been successful in unlocking several innovations (EFM leased lines being an example). Another example is BT's Cablelink product. One might the negative outcomes that Ofcom fears, to be apparent in these cases if justified; other markets in the UK in which, while passive remedies have not been applied, the degree of infrastructure competition is such that similar concerns might be expected to materialise. Central London might be an example of such a market. 3 UKCTA responses to Ofcom s questions In UKCTA s view, the CFI appears to be asking broadly the right questions, so we structure our response around those questions. Our only real comment concerns Ofcom s use of the term leased lines market (paragraph 1.33 first bullet point). In our view, the term is increasingly out dated and meaningless. Respondents to this CFI do not generally speaking consider themselves as participants in the leased lines market because the term leased lines does not adequately describe the inputs they buy or the products they sell. Question 3: What is your experience of the quality of BT s provision and repair of wholesale leased line services? Are there any consistent trends? Can you provide evidence to support your views? BCM services have experienced similar issues of poor service quality as have occurred in fixed access market. Ethernet service provision for example has been inconsistent over a number of years, with problems first starting in 2010: Chart 1 below is taken from the OTA website and provides a view of the provisioning situation for the period up to early May 2014; 2
Chart 2 shows the situation for Ethernet repair. These clearly demonstrate that Openreach service levels are below customer requirements and expectations and that, while it has engaged in five separate programs aimed at improving performance to targets, it has failed to so. The prolonged failure to deliver upon the Confirmed Delivery Date (CDD) promise has had considerable knockon impact upon CPs processes and engagement with their own customers such that customer confidence that orders will be fulfilled on time or circuits repaired promptly is low. As a consequence UKCTA members customers require closer liaison during provisioning and repair processes which in turn increases the amount of operational overhead incurred by communications providers (both in dealing with its customers and with Openreach) in order to make up for service failings at Openreach. We discuss this in response to Q6. Chart 1 - Ethernet provisioning Last updated: 06 05 14 Source: Openreach 3
Chart 2 - Ethernet repair Last updated: 06 05 14 Source: Openreach Question 4: Do the KPIs that BT publishes / shares with industry give you sufficient visibility of its performance. If not explain what further information should be provided and why. As noted above, carve-outs and gaps in the SLA/G regime are such that BT s KPIs do not provide a complete picture of service performance and are likely overestimate BT s performance. UKCTA members are particularly concerned that BT is able to misuse the exercise of its right to put back the CDD due to the application of deemed consent. BT exercises this right too frequently often with cursory or with insufficient justification. Other weaknesses in the CDD process include: Insufficient KCI information outlining the basis for the changed date; Lack of information leading to additional calls/overhead for CPs in contacting Openreach to establish the facts; Incorrect reason codes given e.g. ascribing delays to third party parties when they are in fact Openreach s contractors; and Complex works only being started within 2 months of the customer requirement date even though orders are often placed up to 6 months in advance - which is often too late to identify any issues that need to be resolved prior to meeting that date. A lack of accurate information and an appropriate audit trail for when CDDs are moved by Openreach means that it could apply deemed consent to aid the statistics of meeting CDD by pushing out the CDD for some orders. Public reporting of deemed consent application is necessary. BT is able to waive SLGs when MBORC is called. CPs do not have visibility of BT s MBORC policy and the criteria which leads to the designation or removal of MBORC (for example, anecdotal evidence suggests that once 4
MBORC is in place, a review of its imposition is only considered twice a week). We consider that the criteria and application should be consulted upon and agreed with CPs. A better understanding of the policy and process enables us to have more informed engagement with our customers and importantly ensures that the policy is being appropriately adhered to within Openreach. Question 5: If there are quality or timeliness concerns, how do these affect your business and how do they affect your customers? Please provide evidence to support your views. UKCTA members will be able to provide specific examples within their individual responses. Generally the issues have led: customers requiring greater engagement during the provisioning process; customers now proactively chase updates on their orders; CPs therefore need more resource to deal with these calls; CPs need to make more calls into BT to obtain updates; greater engagement - identifying that Openreach often passes on incomplete and / or false information see response to Q4 & Q6 as to what information is required; customers perception however incorrect that may be - that they could obtain better services from BT Lines of Business downstream of Openreach who might have personal contacts or be better able to influence order progression; and instances of customers putting CPs on stop sell due to provisioning issues. 5
Question 6: Do BT s current provision and repair services for wholesale leased lines meet your customers needs, for example in relation to lead times, keeping appointments or adhering to agreed delivery dates. If not what changes should BT make to its provision and repair services. UKCTA supports the request for process change as proposed by Vodafone. The proposal introduces additional SLAs and attaches SLGs to numerous points in the delivery process moving away from a single SLG for failed CDD. The proposal represents the requirements of CPs due to the changed nature of customer engagement that the long term provisioning failure has encouraged. The latest version of the proposal (emailed by Mark Dalziel of the OTA 20 th May 2014) is set out below. Introduction The current Ethernet service crisis has created a request from the Ethernet CPs to review the current SLA /SLG arrangements for the Ethernet products. The industry view is that the current arrangement is not encouraging Openreach to consider problems in the lifecycle of the order as the SLG only applies at the end of the journey if the CDD is missed. The Ethernet CPs propose that the current provisioning process is retained, but that the SLAs from the product handbook that are in place are formalised within the contract and backed up with SLGs. The aim being to provide a more holistic treatment to the order and to give each order more focus at critical steps in the process. This is not a request to increase the current value of the SLG payment but a division of the value proportionally as set out below. The industry expectation is that this shouldn t increase the overall Openreach cost for SLG payments but it is accepted that if there is a particular element which is consistently failing that this might have an impact. The process today Today the process runs as follows: The proposed process We propose the following process with multiple SLA and SLG points. There is an established level of SLG payment. We do not propose an increase to the level of the SLG payable but a redistribution of the SLG payment, making smaller SLGs payable throughout the provisioning process. 6
Order Acknowledgement KCI 1 Order Category and Indicative ECCs Provided KCI 2 CDD Confirmed KCI 3 Progress Update Progress Update Progress Update Circuit completion measured against CDD Day 0 Day 8 Day 14 Regular progress updates preference to be at least every 5 days Completion KCI1 KCI2 KCI3 Order acknowledgement SLA 100% acceptance or rejection of order by 5pm of the next working day of order placement by the CP. SLG 10% of monthly rental per order which fails to meet the SLA, SLG reoccurs for every additional day late. Confirm order category and provide indicative ECCs SLA 100% confirmation of order category and any indicative ECCs over the flat rate allowance no later than 8 working days of order placement by CP SLG 10% of monthly rental per order which fails to meet the SLA. SLG reoccurs for every additional day late. Confirm CDD SLA 100% of orders to have CDD and ECCs confirmed by BT within 14 working days of order placement by the CP. SLG 25% of monthly rental per order which fails to meet the SLA. SLG reoccurs for every additional day late. Order Progress Update SLA Openreach to provide an update on every order 5 working days after KCI3 and every 5 working days thereafter. An update will provide information on the following categories of information: a) Clarity of latest situation of the order providing specific details of the issue and resolution plan b) Full breakdown of the issues and impact on the order c) ECD for the issue resolution if Openreach to resolve d) Extra detail info (e.g. names of road blockages located and parties involved) e) Details of who has been engaged to resolve f) Time/date stamp for when parties / customers engaged g) Next update due with date provided SLG 5% of monthly rental per order per update which fails to meet the SLA. CPs accept that this area is a difficult one to manage and would welcome a broader discussion around how best to tackle updates the work around Clarity and improved communication is a potential way forward Circuit complete 7
SLA every order completed no later than midnight on CDD SLG 50% of monthly rental per order which fails to meet SLA. 100% of monthly rental for each additional day of failed SLA. SLGs run until the circuit is provided. In relation to repair, UKCTA members consider that the SLA/Gs are too narrow and do not adequately capture all areas of poor performance. For example, there are no out of hours engineers for 10Gb/s services means that there are only 12 hour repair lead times for services which are often more important that 1Gb/s services which have a 5 hour repair target: there are only SLA/G for complete service failure and nothing for severe performance degradation which can cause similar levels of disruption and harm; insufficient reporting information; and no escalation routes should CPs disagree with Openreach s assessment of whether SLA/Gs have been met. Question 7: Do you consider BT has appropriate incentives to provide the quality of service which you and your customers require? If not, what changes do you think should be made to BT s incentives? The evidence shows that BT does not have sufficient incentive to provide the levels of service that CPs and their customers require. Service issues have persisted over a number of years, with BT having to make SLG payments in a significant portion of cases but performance has not improved and only incentivised BT to minimise the level of SLG payments it makes (through activities like MBORC or Deemed Consent), rather than fix the fundamental issues within the BT business which are the underlying cause of the service crisis. In order to address this issue: Ofcom should consider adopting a minimum service quality standard for Openreach BCM services in much the same way as it has done in the FAMR; and Ensure that the appropriate mechanisms are in place such that the OTA, CPs and BT are address the current weaknesses and gaps in the current SLA/G regime are appropriately addressed. Ofcom in this regard should give due regard to the asymmetry in negotiating power between the parties as a result of BT s significant market power. As such, any negotiations should be properly time-bounded such that, should the parties be unable to reach agreement, Ofcom would be required determine outstanding issues. Question 11: Do you have any comments about the scope of our planned work on passive remedies? UKCTA believes Ofcom s proposed scope of work is broadly correct. The more important question is how it assesses the case. UKCTA considers that the best approach is for Ofcom to consider the costs versus the benefits in a transparent manner, considering experience from other EU markets on the effective implementation of passive remedies. In particular, a line of reasoning that passive remedies should be rejected because it is incompatible with a particular form of price control would be inadequate because it fails to consider its compatibility with other forms of price control and there should be no presumption that a particular approach to common cost recovery should be preserved. Unless Ofcom can go further and demonstrate that the form of price control it has chosen is superior to any other form, and to a degree that exceeds any potential benefit of introducing passive access, incompatibility with a particular form of price control should not be a factor in Ofcom s analysis. 8
Question 12: Which of the following types of passive remedy might be technically feasible and suitable for leased lines? Physical Infrastructure Access (i.e. duct and pole sharing); Dark fibre; Wavelength unbundling Other passive remedies (please specify) We reiterate the caveat that this should not be specifically about leased lines, but rather, about the removal of a power currently afforded to BT, to restrict the provision of passive access depending on its end use. Leased lines does not adequately define the set of uses for which CPs are currently prevented from procuring passive access. CPs are prevented from using passive remedies for a wide variety of downstream uses including but not limited to leased lines. UKCTA argues that the most important forms of passive access are PIA and dark fibre. Typically, dark fibre is of greatest use in providing a point-to-point connection between two locations, where suitable infrastructure already exists. It is also typically a more efficient method of serving longer distance connections (such as a fibre ring inside a city and another fibre ring in a business park outside the city). Duct access is of the greatest use when a CP wishes to configure its own topology or route. CPs in other jurisdictions (where the applicable remedy is available for this purpose), use duct access to construct metropolitan fibre networks by linking duct segments that already exist. UKCTA members have yet to express any clear views on wavelength unbundling, so we would urge Ofcom to keep this under review. Initial indications are that it could provide a substitute for dark fibre in some situations (perhaps where no spare fibre is available) but it is unclear what the other costs and benefits might be when compared with dark fibre. A further application of wavelength unbundling might be to implement a network in such a way that its logical structure is different from its physical structure. For example, it might be of use in implementing a logical point-to-point network over a GPON network that is inherently point-to-multipoint in its physical structure. It is important to note, however, that wavelength unbundling can only be used where more than one CP wishes to transit data over the same route, and it will therefore be unsuitable for many routes. This means wavelength unbundling is unsuitable for many routes and would therefore not be a substitute for dark fibre in all cases. Open collocation is an important ancillary remedy necessary to ensure passive remedies work as intended. Equally important is that the applicable remedy does not allow the regulated entity to deny access to passive facilities depending on the segment of its network within which the facility resides. The obligation should be architecture agnostic, thereby allowing access seekers to construct networks that are not dependent or in any way based on, the pre-existing architecture of the access provider. This would not necessarily imply that the access provider would (by default) be required to provide access in which it does not hold SMP in the applicable downstream market. For example, it would be possible to define a cut off in such a way that the access provider is not obliged to provide duct or dark fibre over very long distances. How such an instrument would be defined is a matter for further discussion. The challenge would be to define it in a way that maintains the essentially architecture agnostic characteristics of passive access. Question 13: For what applications could communications providers use each of the types of passive remedy listed in question 12 above? Passive access is an efficient means to allow CPs to expand their network into new geographic areas, and to connect customers in near-net situations. We distinguish between types of deployment and types of application. Deployment refers to the way in which an instance of network roll-out is implemented in the network. Application refers to the purpose which the deployment serves. 9
Types of deployment include: The construction of alternative fibre networks, particularly metropolitan area networks Providing point-to-point connections between sites which may be network to end-user or network to network. Fundamentally, passive access is about providing on-net connectivity in situations where today, only offnet opportunities are available. Applications include: Differentiated services that are not constrained by BT s wholesale inputs (either pricing model or product features). These include higher performing business connectivity, such as higher availabilities, lower latencies, better SLAs and better performance against SLAs Addressing markets that are currently not served by any BT input. We refer here to the ability to address in-between markets that might be of interest to SMEs Replacing copper LLU where this is becoming obsolete. Since VULA is not (and never will be) a perfect substitute for dark copper in providing EFM leased lines, it is important that CPs have an adequate replacement if businesses are to receive the same grade of service in the future that they receive today As noted in the response to question 19, none of the passive remedies that Ofcom chooses to implement in the BCMR (if indeed it does) should be restricted to particular end uses. Question 14: How might passive remedies extend the geographic reach of infrastructure competition? As mentioned in Question 13 above, UKCTA members envisage using passive remedies to extend the geographic reach of their networks by allowing them to construct (for example) city fibre networks. Quite how individual CPs would implement this in practice is of course, not a matter for an UKCTA submission. Question 15: Would the presence of physical infrastructure belonging to other CPs affect usage of passive remedies? For example would you expect passive remedies to be used only or mainly in areas where only BT has passive infrastructure or would you also expect passive remedies to be used in areas where other CPs have passive infrastructure? UKCTA members can and do use each other s passive facilities. Examples include duct sharing, dark fibre access and fibre swaps. The presence of alternative infrastructure would undoubtedly be a factor in determining the demand for BT s passive infrastructure. Nevertheless, due to the ubiquity of BT s facilities we would expect BT to be the main provider, even in areas covered by alternative infrastructure. One important factor is the availability of information. In other countries, passive access is supported by an online ordering tool, populated with a database of existing facilities. We would expect an obligation to provide passive access to be accompanied by a requirement to develop such a tool. Since it is unlikely that a small provider of passive facilities would have the economies of scale to develop such a tool, the ready availability of information on BT s facilities may be a factor leading access seekers to choose BT even when alternatives are available. There may also be increased transaction costs in dealing with multiple infrastructure providers, which in some situations make it more efficient to have most or all passive infrastructure needs met by a single provider. BT s ubiquity provides it with a competitive advantage in such situations, even in areas where other providers are available. Question 16: what are the benefits that passive remedies might offer in comparison to active remedies? Please consider specifically: Service innovation benefits eg the ability to differentiate service features and functionality (such as fault finding, configuration options etc) 10
Network innovation benefits eg the ability to configure the network in a different way to BT s network configuration Technology innovation benefits eg the ability to adopt new technologies, or introduce new technologies earlier than they might otherwise have been introduced Avoiding duplication eg the ability to avoid the duplication of network elements for network monitoring purposes Other benefits (please specify) While it is difficult to quantify the benefits, the broad categories of benefit can certainly be identified. Essentially, the benefits of passive access amount to the ability to break free from artificial constraints imposed by BT. This includes the ability to break free of all the constraints that BT imposes on the rest of the industry in terms of its product specifications, service quality, features, functionality, market segmentation (geographic and product) and pricing model. One aspect of the benefits of passive infrastructure access is its ability to allow the CP to provide services on-net that would otherwise be provided off-net. The question then becomes about advantages that end-users derive from on-net service delivery. UKCTA members customers gain benefits from on-net service in terms of SLAs, lower latencies, innovative technologies, network performance monitoring equipment, better quality of supply and better availabilities. Passive remedies would widen access to on-net connectivity and hence, to the benefits it allows. However, this by no means captures the full list of benefits that passive remedies potentially offer.. Fundamentally, passive infrastructure allows CPs to operate according to their own economic model, rather than BT s. In other words they would be able to address currently unserved markets (product and geographic) and price more flexibly and in more innovative ways. They would also be able to realise a greater proportion of the option value of expansion, by lowering the cost of future customer acquisition leveraging off pre-existing network facilities. Currently, market incentives are highly distorted due to the fact that, when a CP acquires a new customer, all of the option value of that acquisition resides with BT. CPs will pay BT for new facilities (via Excess Construction Charges) and the CPE. Yet only BT benefits from the option value of that expenditure. Question 17: How valuable would the innovation benefits of passive remedies be? Would they be sufficient for you to choose passive remedies if there was no overall cost advantage compared with active remedies (ie if the price of the passive remedy was exactly equal to the price of the active remedy less the cost of the network components that you would need to provide? We understand the reason for the question, which is to understand whether passive infrastructure access is all about cost, or whether there are other benefits that would remain even in the absence of the cost advantage. In essence, this question is really about identifying the limiting case for choosing between different build-buy options. Unequivocally, the answer is yes, passive access would still be of interest in this scenario. UKCTA members customers sometimes pay their service provider to undertake significant new network construction, just for the benefit of receiving the service on-net. It stands to reason that if network construction were cheaper, more customers would find it worthwhile to ask their CPs to undertake it. This does not mean that UKCTA is in favour of a remedy applied in this manner, even though it would be an improvement compared with today. This is because it would effectively rule out a vast proportion of the potential dynamic benefits potentially on offer, particularly those that would result from CPs being able to sell in the market based on their own economic model rather than BT s. Question 18: what are the technical and operational challenges associated with deploying and using passive remedies and how might these be addressed? 11
Ofcom should be aware that the technical and operational challenges will be significant and we would urge it to be well prepared for them in advance of implementation. By the time the next BCMR remedies are adopted, there will be significant pent-up demand for passive remedies (as there already is today). Therefore, we would urge Ofcom to specify as much as possible within the remedies in order to avoid delays due to product development. However, other countries have proven that the challenges are not insurmountable. By a process of learning, processes have matured over time, such that service delivery via passive access is now very much business as usual. By learning from the experiences of other countries, Ofcom has a rare opportunity to obtain secondmover advantage. The precise dos and don ts are too detailed to discuss here at any great length. UKCTA members have varying degrees of experience of operating in other countries. Nonetheless, the following best/worst practice elements can be identified: The fewer restrictions the offer includes (especially in terms of network segments), the more workable the offer is and therefore the higher is the demand; The possibility of including different types of SLAs in the offer, both regarding delivery lead times and time to repair, is a driver of demand; The implementation of a well-defined and easy-to-use process by the provider in determining/surveying possible routes, is necessary to get a workable product and thus increases the demand; The presence or the initiative of implementing a tool, giving CPs the access to maps of the provider s passive network, facilitates take-up. Question 19: what are the strengths and weaknesses of different pricing structures that might be adopted for passive remedies, in particular: Uniform prices that do not vary either by geographic area or the use to which the passive remedy is put (eg residential NGA versus leased lines); and Prices that do vary according to geographic area or the use to which the passive remedy is put, and which reflect the value of the services provided or geographic differences in the intensity of passive infrastructure usage, more like the way BT prices active products now? It is not appropriate to link the charge for a raw wholesale input such as passive infrastructure, far upstream from its eventual end-use, to its intended use as this would potentially: remove the benefit from the access seeker of any innovation developed and delivered on top of the wholesale input; constrain the possible use or uses of the input; constrain the deployment of downstream technology and potentially freeze in time any technology first used; deny the access seeker the benefits of capturing the benefits of scope and scale; frustrate competition in the downstream markets; lead to inefficient use of the asset as the access seeker may be forced to purchase multiple inputs to meet various needs rather than re-use a single input for multiple uses; and over compensate the access provider who, while not investing in the downstream innovation or risk, captures any upside benefits while being sheltered from any downside losses. Charges for passive infrastructure should be cost based, recognising its natural monopoly characteristics and the low probability for replicability. 12
A uniform charge would appear to be the most appropriate and pragmatic pricing structure to adopt. However, if there are objective, evidence based, geographic differences to the underlying incremental costs, that can be unambiguously distinguished between practically defined areas, and that give rise to sufficiently material charges, then these might be considered to warrant varying the charge by region. 26 th May 2014 13