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Review of Openreach’s charges

May 30, 2008

Ofcom today set out a review of the prices that Openreach can charge communications providers for its wholesale access telecoms services.

The review is designed to sustain and promote efficient competition in the provision of telecoms services for the benefit of UK citizens and consumers whilst continuing to encourage investment and innovation.

Openreach was created in January 2006 after Ofcom accepted legally-binding Undertakings from BT Group plc, rather than referring the company to the Competition Commission. This resulted in the creation of Openreach as an operationally separate business unit which provides wholesale access telecoms services to all communications providers on an equivalent basis.

When Openreach was created, Ofcom agreed the maximum prices that it could charge for its main services. These charges did not include an annual adjustment for inflation or other cost movements. At the time Ofcom said it would review the charges in the future and today’s publication marks the start of the review.

Openreach’s services

The consultation covers Openreach’s main services. They are:

  1. Wholesale Line Rental (WLR) – used by communications providers to offer telephone services to consumers over the BT network.
  2. Local Loop Unbundling (LLU) – which allows communications providers to install their equipment in BT’s telephone exchanges to offer their own retail services including broadband. There are two types of unbundling: full unbundling, where a communications provider takes over the line to provide broadband and telephone services; and shared unbundling, where a communications provider shares the line with BT for the provision of broadband only.

Market developments

Since the charges were first set and Openreach was established there has been a transformation in the telecoms market, with a significant increase in direct competition in the provision of both telephone lines and broadband services. Today, there are more than 4 million unbundled lines in the UK, which has led to increased choice and led to an improvement in services for consumers.

Consultation process

The consultation will be in two stages. Today’s consultation sets out the considerations that Ofcom will take into account in determining any new charges.

While not yet specifying pricing levels, the consultation examines the current and expected changes in underlying costs, service volumes, expectations of efficiency gains and the effects of new pricing arrangements on competition.

The second consultation – due later in the year – will set out more detail on the proposed new charges.

Ofcom aims to publish a final statement before the end of 2008.

The consultation can be found at:

http://www.ofcom.org.uk/consult/condocs/openreach/

Ends.

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