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BT and Ofcom

About 16 months ago, I heard Ed Richards of Ofcom speak at a CITI conference at Columbia, and blogged about it here. I remember thinking that Richards didn’t seem to think that highspeed access to the internet was all that important. The market had to demand it, and the market wasn’t being demanding. Also, he wasn’t interested in government intervention to support highspeed access.

[In April 2007] Richards said (paraphrase mine): We won’t give network providers money - instead, we want to let the market make the decision. Are consumers willing to pay for a higher-speed broadband network? It has to be be funded by consumers. I see no case for funding broadband by the government. A national response of government funding would likely waste taxpayers money, preempt the market, and re-create a state monopoly. So we have to encourage consumers to pay more - they need to like the service proposition that they get. This can include content rights, bundles of services, etc.

(Note the well-informed anonymous comment following that post:

Since 2001 the UK Government has provided one billion pounds of “incentive” through state aid (channeled through the Regional Development Authorities), public-private partnerships and induced/aggregated demand from public services (egovernment projects, schools- and hospitals-online) to get BT to install DSL equipment in areas where the company said it was not “economically viable.” For documentation see “Broadband Procurement To Improve Efficiency and Effectiveness of Public Service Delivery” by Mike Gunston, UK Office of Government Commerce, presented at an OECD Broadband Workshop, Paris, France (2-4 December 2002).

This huge subsidy bribe sum was supposed to achieve the Government’s goal of making the UK “the most extensive and competitive broadband market in the G7 by 2005? (UK online: the broadband future - An action plan to facilitate roll-out of higher bandwidth and broadband services, Office of the e-Envoy, 13 February 2001).)

Well, this week it looks as if the regulator, Ofcom, has again moved towards providing “incentives” to BT, this time to encourage BT to install fiber.

BT’s announcement is here. Here’s a key phrase:

A supportive and enduring regulatory environment is essential if this investment is to take place. Given this, BT will be discussing with Ofcom the conditions that would be necessary to enable this programme to progress. These include removing current barriers to investment and making sure that anyone who chooses to invest in fibre can earn a fair rate of return for their shareholders.

BT is probably asking for subsidies, if the comment above is accurate. It’s also saying in its press release that it will act as a wholesaler, which is a fascinating development. (And makes BT sound quite different from Deutsche Telekom.) BT wants cable to be similarly open. Given the “barriers to investment” and “fair rate of return” language the company using, I wonder what BT has in mind. It may be that “wholesaling” isn’t the same thing as equivalent access - so BT could offer super-duper services that its competitors can’t. Also, just providing “wholesale” access doesn’t mean offering access that anyone can afford.

Which leads to the question: How much fiber, and where? Karl Bode characterizes BT’s offering as “Fiber To The Press Release.” (That’s probably only funny to telecom-conference-attendees, but side-splitting to them.) His summary is that “the majority of BT customers will still be on copper unless the government ponies up subsidies and passes the laws BT wants.”

Ofcom, for its part, is producing the sounds that BT wants to hear. According to a story in The Register, Ed Richards recently said:

“They [investors in fibre] need a time horizon that gives them a degree of assurance for a realistic period in the future; that they know for example that the regulator will not suddenly change the rules of the game to reduce the returns just as the rewards for the risk start to flow in.”

Ah, the regulatory holiday. That sounds very Deutsche Telekom.

By Susan Crawford, Professor, Cardozo Law School in New York City

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