U.K. telecommunications regulator consults on broadband's future

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(This updates an item published at around 0839GMT adding analyst comment and a response from BT.)

LONDON (MarketWatch) -- Telecommunications regulator Ofcom Wednesday began a wide-ranging consultation to map the future structure of the U.K. broadband and access markets, aiming to maintain the country's competitiveness with other industrialized countries.

Faced with rising use of high speed Internet services such as video-on-demand television and online computer games, Ofcom believes that over time the U.K.'s existing copper-based telecoms networks will be unable to meet consumer demands.

Ofcom's "Next Generation Access" networks consultation - the release of which follows comments made last week by the U.K.'s competitiveness minister Stephen Timms - will seek input from the country's telecoms industry, including BT Group PLC BT, -0.33%, Carphone Warehouse Group PLC (CPW.LN), British Sky Broadcasting Corporation (BSY.LN) and Virgin Media Inc VMED.

Speaking last week, Timms warned that the U.K. risked falling behind other major industrialized countries such as Japan and the U.S. that are rolling out high-speed fiber networks.

The majority of the U.K.'s broadband infrastructure runs over copper wires, originally installed to provide voice calls to homes. Openreach, a standalone division of BT, manages most of the country's telephone exchanges and broadband provisioning can provide speeds of up to 24-megabits a second over this existing copper network. However, by comparison, certain cities, such as Hong Kong can provide connections speeds of up to 100 Mbps through fiber.

"The development and consumption of high speed services means that current (U.K) generation networks will at some point be unable to deliver the very high speed broadband service that may be demanded by customers," said Ofcom in a statement.

However, the biggest question around these "next generation networks", that could cost tens of billions of pounds, is where the investment will come from. This is something that Ofcom wants to discuss with the industry.

Historically, the national telecoms infrastructure was managed by former telecoms monopoly BT, but the competitive landscape has now changed. Openreach has freed up three million broadband lines that are controlled by rivals of BT's Retail division, including Tiscali SpA (TIS.MI), Carphone Warehouse and BSkyB. In addition Virgin Media's cable network spreads across 50% of the country. Cable & Wireless PLC (CW.LN) and Colt Telecom (COLT.LN) also run telecommunications networks.

BT came under regulatory scrutiny in the past and created Openreach as a separate entity to ensure rivals had competitive access to the national infrastructure.

In a bid to avoid the legal wranglings that Deutsche Telekom AG DT, +0.26%, for example, has faced from regulators in Germany in providing competitors access to its fiber-network, Ofcom wants to assure that there is "regulatory clarity" upfront, so that telecoms operators will invest in new infrastructure without fear of future ramifications.

"Investment in next generation access will represent a substantial commercial risk and the market should decide where and when it will be made," said Ofcom Chief Executive Ed Richards. "We want to ensure there are no barriers to investment and provide a clear regulatory environment which will help encourage investment."

Likewise, Ofcom wants to ensure that the market remains competitive and that a monopoly doesn't emerge.

BT welcomed Ofcom's decision to open up discussion on the issue with both government and the wider industry.

"We are totally committed to providing our customers with the services they want both now and in the future. We already provide fiber connections to 120,000 businesses and we will continue to deploy fibre where it makes commercial sense," said a BT spokesman.

"As with all consultation documents from Ofcom, the policy approach to next generation access should be seen as the start of a debate and not the conclusion, but the early indications are that the regulator is sympathetic to BT's opinions on this issue," said Dresdner Kleinwort analyst Lawrence Sugarman in a research note.

"Furthermore the approach seems to be somewhat at odds with the comments of Mr Timms, the government minister who had caused some concern amongst BT investors," he added.

Timms had suggested that the government would be unwilling to pay for the investment, meaning telecoms companies such as BT may have to foot the bill.

A spokesman for BT said that the financial investment case for fiber networks to the home had yet to be made. However, he emphasized that the company was putting fiber into some greenfield sites and providing faster networks for thousands of businesses by using this technology.

Company Web site: http://www.ofcom.org.uk

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