BT Partners

Perspectives on Differences in the Transatlantic Approaches to

Broadband Policy

Aryeh FriedmanSenior Competition and Regulatory Counsel

BT Global ServicesWashington DC

Broadband Defined

FCC Defines Broadband as anything over 200 kbps measure

That is over-inclusive.

More realistic -- Residential

Over 1 Mbps

Residential: Would include DSL, cable modem, Fiber to the Node and Fiber to the Home

Enterprise Market

Over 1-2 Mbps

BT’s DSL deployment

Historical view of BT Wholesale Broadband

0.00%

10.00%

20.00%

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40.00%

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60.00%

70.00%

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90.00%

100.00%

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% Exchanges

% Households

• Over 99% of UK households are in ADSL enabled exchanges

• The remaining exchange areas are extremely rural in nature with ~ 200 customers in each

• Solutions to provide broadband to these remote areas are being investigated

• Cable provided broadband is available to ~ 55% of the households in the UK

UK Broadband Penetration

•Total UK broadband penetration is currently ~55%

• Approaching 8.4 million households are served by BT Wholesale broadband

• BT Retail has an end customer relationship with ~ 3 million customer. Less than 25% market share.

•1.7 million customers have broadband provided by other communication providers through Local Loop Unbundling

• In addition, there are approximately 3 million cable broadband customers

Historical view of BT Wholesale Broadband

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1999

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Availability of DSL Speeds in the UK

Almost 90% of UK DSL subscribers receive service at speeds of 3 Mbps or more.

Estimated DSL Max speed distribution

Based on line checker data and estimates only

Line rate Percentage of PSTN lines

0.5Mb 98%

1Mb 96%

2Mb 93%

3Mb 89%

4Mb 78%

5Mb 63%

6Mb 42%

>or =6.5Mb 25%

UK Broadband Connection Speed

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128Kbps

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576Kbps

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Don't know

≤2Mbps servicesare falling

>2Mbps servicesare growing

22

32

85

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21

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40

Any BT Virgin Media Tiscali Orange AOL

Other ISP CPW Sky NTL Telewest

UK Retail Broadband Market Has Vibrant Competition

%

• Recent wave of consolidation and new entrants:

• Virgin Media was formed by the merger of NTL, Telewest and Virgin

• CPW has bought AOL (but is retaining the brand)

• BSkyB (satellite pay TV operator) has bought EasyNet

New survey

Vibrant Retail Broadband Competition in the UK

LLU now being aggressively deployed by major broadband service providers.

Significant percentage of Broadband (~12%) and rapidly increasing (over 57,000 orders completed per week)

Bulk of retail broadband competition still from cable and CLECs selling BT DSL products.

Most offering up to 8Mb services with intention of using ADSL2+ (i.e., up to 24 Mbps)

Per Ofcom Report, from December 2002 to May 2006, BT speeds (max) have risen from 0.5 to 8Mbps while prices have dropped from 27.99 to 17.99 per month.

Over 60% of small and medium enterprises in the UK use business DSL

Vibrant Retail Market in the UK

UK Broadband PricesUK Market structure has produced a wide variety of pricing packages tailored to specific users

Most ISPs offer a number of options based on

Contention ratio

Data cap allowance

Static IP addresses

Included web space

Included e-mail

Value added services

Security services (firewalls & antivirus software)

Domain registration

Dial-up backup

Some additional Virtual / reseller ISPs target local areas

Distribution of pricing packages from 69 ISPsBased on 228 consumer ADSL packages

Distribution of Residential Broadband Prices

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5Total Cost of Ownership (UK£/annum)

Nu

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Source: http://www.adslguide.org.uk/isps/packagelist.asp

US Broadband Market Share Compared (Source: 2006 Broadband Reality Check Report by Free Press et al)

Non-Incumbent Sources of Broadband

Competition in the USA

Is Decreasing.

US Non-Incumbent DSL Market Share Compared (Source: 2006 Broadband Reality Check Report by Free Press et al)

BT, Verizon, AT&T Residential Broadband Compared

Consumer Speed Price* Included

BT Total Broadband(Regulated Wholesale DSL)

Up to 8 Mbps

$21/mt first 3 mts $29/mt for mts 3-12

250 Free Wi-Fi Minutes at 10,000 BT HotSpots throughout the UK.

AT&T DSL (No regulation)

Up to 3 Mbps

$29.95/mt for 12 mts

Verizon DSL (No regulation)

FIOS(No regulaton)

Up to 3 Mbps

Up to 5 Mbps

$19.99/mt for first 6 mts. $29.99/mt for mts 7-12

$29.99/mt for first 6 mts. $39.99/mt for mts 7-12

* Using OECD’s Purchasing Power Parities Rate used in its Rate Comparisons

US. v. EU Regulatory Environments

Impact on, e.g. Net Neutrality: OfCom

“The lack of unbundling in the US is likely to mean rapid concentration in the retail ISP market. The result is generally that, at the retail level, consumers only have a choice of broadband operator to the extent that they are able to choose between operators with lines connected to their home – a choice between cable and telcos, rather than multiple ISPs offering bitstream or LLU access.

This lack of choice, it is argued, could lead to abuse of the operator’s resulting market power. And this, it’s then argued, needs to stopped by outlawing any “non-neutral” behavior using new legislation. This is an important point because it is the retail ISP, operating at the IP layer of the network, which can have most impact in prioritising traffic. . . .

As the UK has such strong retail ISP competition, these problems, and therefore a strong case for new ex-ante legislation, are much harder to imagine.”

Speech given by Tom Kiedrowski on behalf of Lord Currie, OFCOM, at CEPS/Progress and Freedom Foundation Conference in Brussels Feb. 22, 2007

USA: ICT and Productivity

USA had two productivity surges between 1995-2000 and 2000-2004 that caused USA to leap ahead of Europe in productivity. Only one was ICT-led.

1995-2000 – use of information communications technology (ICT) dominated this surge.

2000-2004 – non IT factors dominated this surge.

See Jorgenson, Ho and Stiroh, The Sources of the Second Surge of US Productivity and Implications for the Future (March 2006).

1995-2000 -- Correlates to period when market opening commitments of 1996 Telecoms Act were being implemented in USA

2000-2004 – Correlates to period when FCC began to deregulate uncritically

A history of investment…

Higher investment in better regulated countries (OECD, ECTA, LE). Source: ECTA

Source: Infonetics Research, London economics

Effective Regulation vs. Investment

The Report also measures the relationship between the effectiveness of the regulatory environment in each of the Member States surveyed and the level of telecommunications investment in that country, based on OECD data. The economic analysis conducted in this regard shows that effective regulation continues to have a strong and positive impact on the level of investment in telecommunications networks and services.

Relationship between Scorecard and Investment as percentage of GFCF

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200 250 300 350 400 450

Scorecard

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DE BE NL

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IE

FR DK

ATSE

IT

UK

Source: ECTA (European Competitive Telecommunications Association)

Thank you