The UK’s regulator has undertaken much commendable work in recent years, which has helped to establish the country’s telecom sector as one of the most competitive and vibrant in the world. The regulator stood up to BT’s intransigence in the early days of Local Loop Unbundling (LLU), enforcing the creation of BT Openreach in January 2006 to operate as the company’s wholesale division. The results have been very impressive: compared to 360,000 unbundled lines at Openreach’s inauguration, there are now about 6.06 million. More than 20 telcos provide services on this network of unbundled lines.

Ofcom has not been an organisation to regulate for its own sake—its mantra is that where effective competition exists there is no need for regulation. Thus with wholesale access: it has always considered wholesale access as a necessary complement to infrastructure-based competition, and by May 2008 it was able to deregulate the wholesale broadband market in those areas of the UK which are served by effective competition, particularly the larger towns and business districts. The move affected almost 70% of the UK wholesale broadband market, where customers are served by four or more broadband providers and where no single company has significant market power (SMP). In these areas customers are considered to be protected by effective competition. In uncompetitive areas Ofcom still requires BT and KCOM, in Hull, to provide a wholesale product to other providers.

The retail sector has now also shown the benefits of effective regulation, reinforcing Ofcom’s position that continued regulation can constrain competition if a major market player (BT) is prevented from offering similar services as its competitors. In August 2005, Ofcom published the Network Charge Controls (NCC) for BT’s narrowband products for the following four years, which were estimated to reduce costs for UK businesses and consumers by around £350-400 million. Now, Ofcom has assessed that there is sufficient competition in the retail fixed-line telephone market (mainly from Virgin Media, BSkyB and TalkTalk, which collectively serve some 12 million UK households and businesses) that BT is no longer considered to have SMP. For the first time since the company’s privatisation, BT can sell discounted service bundles including landline telephony, broadband, digital TV and other services. The decision affects all areas of the UK except for Hull, where KCOM remains the incumbent (with SMP). The regulator’s move was the next logical step following the 2006 removal of restrictions on how much BT could charge for landline calls. Despite removing this restriction, competition has driven down the cost of residential landline calls from £25 per month in 2003 to £21.60 in 2008.

Deregulating the retail telecoms market is likely to lead to more choice and lower prices for consumers. Since BT can now offer bundles, the company can tap into the prevailing trend among consumers: nearly half of them buy service bundles, compared to less than a third in 2005. Bundles have become an attractive business proposition for operators, while for consumers these offerings not only simplify the process of accessing services but enable them to get cheaper deals than if they were to by these services separately. Virgin Media currently offers a quad-play of broadband, TV, fixed-line and mobile telephony, while there are at least eight operators offering variations of triple play (adding either mobile of TV to the mix).

This important market development is a direct consequence of BT’s functional separation in 2006 and its related undertakings to provide non-discriminatory wholesale services to competitors, with its knock-on effect in the retail sector. Three years down the track, the process has shown that functional separation is good for innovation and competition, good for consumers, and ultimately good for incumbents which not only retain ownership of their retail and wholesale divisions but, by playing fare, can whittle down regulatory constraints.