Duct Access – The Devil is in the Detail

The Coalition Government professes to understand the benefits of superfast broadband to businesses and the economy.  Their Broadband Strategy, which was launched in December 2010, explained that:

 “The benefits of superfast broadband have an impact across the whole economy – whether this is through greater scope for tele-working and home-working, which reduces the pressure on the transport network and lowers carbon emissions, or better delivery of public services – such as remote education services.  …  It will reduce costs for consumers and enhance the capability of businesses to communicate and exchange information with their customers and suppliers. This is fundamental to our future prosperity.  …   It is important that the vision of broadband is not limited to domestic users only – the effect on businesses can be just as dramatic.”

But that vision doesn’t seem to have filtered down to Ofcom.  Ofcom have always found it hard to take an interest in anything outside of mass market consumer services.  It doesn’t fit with their economic theories or make an impact on public opinion.  Big brands, bundling and broadcasting are where it’s at, as far as they’re concerned.

When imposing a requirement on BT to open up its ducts to investors in superfast broadband networks (known as “Passive Infrastructure Access”), they nailed their colours to the mast.  In their review of the Wholesale Local Access Market they decided that:

“BT will be obliged to provide PIA services for the purposes of deploying of NGA networks to support services such as broadband, telephony and cable TV, but not, at this stage, leased lines. Further consideration will be given to extending the scope of the remedy to include leased lines in the next business connectivity market review, which is due for completion in 2012.”

 “Leased Lines” is Ofcom jargon for high bandwidth symmetric data services which are BT’s cash cow.  Of course BT doesn’t want to cannibalise this revenue.  Ofcom’s economists put it like this:

 “The use of PIA for arbitrage of BCMR remedies [i.e. leased lines] in this way could then mean that BT was unable to recover its common costs.”

 Which, translated, means:  “We do not wish investors in fibre networks to offer high bandwidth services at affordable prices to small businesses because of the impact it would have on BT’s revenue stream.”

 BT have now published their draft contract for duct access and its terms duly prohibit the use of the duct “for leased line or fixed or mobile backhaul services or for the provision of uncontended service between two business end user premises [or] for any other purpose than for its own Next Generation Access Services”.

Messrs Vaizey and Hunt should be reminded that the Devil is in the detail.

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About Ayres End Consulting
Telecoms consultant specialising in interconnect, regulation & public policy.

22 Responses to Duct Access – The Devil is in the Detail

  1. PhilT says:

    Would OFCOM have the power to mandate duct access for those “other” uses, or are they confined to the wholesale local access market because that is where BT has SMP and hence can have regulation applied ?

    If they were deemed to have SMP in the business connectivity market then the option to mandate duct access for that would presumably open up.

  2. The answer to you first question is debatable. I think the EC NGA recommendation gives some room for manoeuvre, but Ofcom think leased lines are in a different market.
    In the last business connectivity market review, Ofcom mandated neither dark fibre nor duct access as remedies for SMP. So we shall see…

  3. Somerset says:

    If BT had to open duct access for leased lines then would Virgin Media, C&W, Global Crossing etc. have to? All have their own ducts across the UK.

    Global Crossing have some really useful ducts alongside railway lines.

  4. PhilT says:

    Small businesses could of course be served by FTTH type connections in any case. Just as they probably now run on ADSL. The VOA have said that SMEs on an FTTH type infrastructure will be rated at the £/connection rate.

    • The could run FTTH, but these (by their definition) are p2p links so are no good for providing direct intersite links. Whilst there are technical solutions to virtualise such a topology, why let regulation impact on the delivery on the best solution?

    • Somerset says:

      Of course many larger businesses already have fibre for ISDN and data circuits.

  5. It may well be unenforceable, but the point is the concept of a “leased line” is redundant with FTTH, but Ofcom and BT would like artificially to maintain high prices for businesses. VOA face the same issue. The rateable value for business and home use used to be different, but when businesses can obtain cheap connectivity, VOA will have to reassess the rateable value.

    • Somerset says:

      Why is a leased line redundant? Businesses still required dedicated circuits from A to B, unconnected to the public internet with 100% guaranteed bandwidth.

      • Somerset says:

        Please explain why a leased line is redundant with FTTH.

      • Well, FTTH can offer uncontended symmetric high bandwidth connectivity. How does that differ from a leased line? Are you thinking in terms of SLAs? What products are you thinking of when you talk of leased lines?

      • Somerset says:

        Hope this appears in the right place…

        For instance a company needs a 100M connection between their 2 sites 200km apart for controlling their production processes. Would they rent 2 broadband circuits and be subject to the effect of the traffic on the internet in between? No, they rent a circuit from a telco which would just happen to be provided over fibre.

        Fibre into businesses has been used for 20 years so in theory FTTH is nothing new, other than the technology and pricing for large scale use.

      • I’m thinking about tail circuits linking customer premises to exchange. Eg WES? (or EAD) Would you not call that a leased line? (This is why the contract needs to include a definition of “leased line”, which it doesn’t have at the moment.)

        I don’t think you have to be “on the internet” if you have dedicated fibre and IP peering/ IP VPN/ MPLS. The price of leased lines is high because of charges for electronics equipment. It would go through the floor if providers could buy dark fibre or duct and offer wavelengths, etc.

  6. Fibrewarrior says:

    There is an interesting aspect of the localism bill – will communities get the right to access ducts when private sector companies fail to make the most of these vital assets?
    Hugh Rollo looks at this in his piece on the localism bill at http://www.guardian.co.uk/social-enterprise-network/2011/feb/09/best-bits-localism-bill-social-enterprise.
    I’m looking forward to hearing Hugh speak at this event next month – http://www.socialenterpriseincumbria.org/Events/Event_Detail?record=1bbe1af4-8743-102e-9d68-003005bbceb4 to get the lowdown…..

  7. I guess the issue of Leased Lines is always going to be more complicated, especially when some of them have to be physically dug in and installed exclusively for a particular business. On the other hand we did raise this issue too when BT published its rates, although it looks like we’ll have to wait until 2012 to see Ofcom’s full reasoning for not being stricter on this point.

    I am certainly a little concerned that BT’s proposed restrictions are too heavy handed and it will be interesting to see what Ofcom’s final response is to this in the coming weeks/months.

  8. Louise, all valid points but this is only one of a whole number of restrictions which Ofcom imposed. I raised these with Ed Richards but he hadn’t heard of them. I wrote but have heard nothing further.

    The contract is the most one sided I have seen from BT in many years, the SLA for example says that BT will pay nothing to the customer but requires the customer to grant unlimited indemnities to BT – the reverse of an SLA really.

    Oh and BT have now closed the window on negotiations, they issued an email at 4.30pm last Friday setting a deadline of Monday afternoon for industry comments. Not ideal really.

    And lets not forget their recent statements that before giving anyone else access to BT ducts they will insist on reciprocal access.

    It’s not exactly attractive is it?

  9. Leo Borwick says:

    Louise, the implication of the common costs point is that Ofcom believes that leased lines and consumer WLA products as a group have a set of common (or more strictly shared – otherwise they might be recovered from, say, calls) costs that can not be recovered from the WLA products, because Ofcom has already driven those costs down to a level that does not permit this. There might be justification for this pattern of cost recovery – i.e. it might be what would happen if the market were effectively competitive – but I’m not sure that they have made that case. So in effect they have used up all their magic dust in pushing for the three Bs that you mention.

  10. Roger Steele says:

    This is a rather long comment. Disclaimer: this is a pesonal view and it need not reflect any client or my employer’s view.

    First some definitions of leased lines that might help.

    Ofcom will almost certainly refer to leased lines in the traditional sense. These are retail services mainly bought by businesses. They link two sites with a circuit that gives 2Mbit/s or more with fixed capacity. Sub rate (<2Mbit links) are also available. The speed is guaranteed 24/7. The access is over copper or fibre. The core network has resiliance to re-route the link (using time division multiplexers – TDM). There are QoS features and billing and service management. There is usually a termination unit on the customer site. At extra cost dual access links to one site are possible (for resilience to the "back hoe digger" failure). Sometimes many links terminate at one site and may be physically delivered (multiplexed) over one access fibre, but they are still discrete circuits.

    IP VPN leased lines are now frequently bought. These have an access circuit to the managed IP core (not the Internet). The circuit is still linking two sites but there is contention within the core (if all businesses passed data at the link's access speed at the same time, then packets might be lost). There is QoS and service management. The access link (mostly over fibre) could be shared by links to several sites. The easier management (IP core) and sharing of capacity means they are cheaper than TDM traditional lines (see above).

    Analogue leased lines also exist. These are mostly simply copper access wire pairs connecting two customer sites usually in the same city. As a result there is little management of the link's performance and telcos tend not to promote them (including increasing the prices a lot) as, if there is a fault, manual interventions are often needed. Deemed a "legacy service." I think they are now not regulated.

    None of these are a fibre tail circuits linking to an exchange site (see previous submitted comments). A fibre tail is used as part of a leased line but they are not the same thing.

    The above leased lines are sold as retail products. They can also be bought by other operators. In Oftel days, the OLOs paid the retail rates. This was to encourage the build out of infrastructure and the laying of cables between cities, rather than rental of BT links. The build out of the original Global Crossing UK network (mentioned in earlier comment) was done probably on based on this logic – creating a backbone for re-sale. Done originally by BRT, I think. Infrastructure competition and investment are both deemed a good thing (e.g Ofcom's aims are still to promote competition and investment at the lowest possible levels).

    OLOs however needed to sell their own leased line products and, without coverage of the whole country, would need a BT leased line at one end and (at retail rates) this would not be competitive and a retail line does not naturally join to the half circuit line of the OLO. This led to a remedy – wholesale leaded lines (half circuits [aka partial private circuits] or just backbone links) to enable OLOs to make their own leased line services and to help build their own networks nationally. These are wholesale products and sold at wholesale rates. OLOs also built their own access networks (COLT for example) and this means that BT does not have complete dominance of leased line and access networks, at least in some areas of the UK (such as London).

    None of these products above are broadband access products. A fibre with say 100Mbit/s access to the Internet is not a leased line, nor is a 2M DSL business Internet access product a leased line. A business could buy two (or more) of these broadband access products and connect its sites together. This makes a "DIY leased line" by tunneling through the Internet. There is no guaranee of service and for security it might need encryption.

    Next, a discussion of markets and remedies.

    The dominance in the leased line market by BT led to the remedy of wholesale leased lines. It was seen that infrastructure investment was happening but probably would never occur across the country hence the need for the remedy.

    The dominance of broadband access market has led to the remedy of various bistream access services and opening of the duct access. See also VULA discussions.

    This simplifiied view of regulation, means two separate market problems were identified and two remedies that were then independently defined.

    Ofcom realised that opening up of ducts for leased lines means there is an arbitrage issue (duct access for leased lines). This was stated in a previous comment to this chain. This might be OK, or else it might be a problem, hence the statements that it will be addresed in the next business market connectivity review (due 2012 acording to earlier commments). If Ofcom did not do this and did not put in the caveat of the 2012 review, then they would be defining a duct access remedy that applies for the leased line markets. This could be dangerous without fully thinking it through. It might also be good. Leased lne markets had their own remedies and thinking so bringing in a new remedy without full thought, could be a mistake. See also the earlier comment about common cost recovery – this must be though through.

    If duct access for leased lines is available then it might reduce the investment incentive on OLOs e.g. COLT etc., to build new networks: going against the general Ofcom idea that investment at the lowest level is to be enouraged where economically sensible. If it had been done in the past, it is likely that fewer telcos would have dug the streets. Good or bad? I leave that for others to judge.

    Another aspect of passive infrastructure access (PIA – see earlier) is dark fibre. This was not mandated on BT in the past for access to busineses in order to encouorage OLOs to build fibre and create competition at the lowest levels. Dark fibre access is only now being considered for NGA and whoesale broadband (see EC NGA recommendations). This is a different remedy from opening up "dark fibre for leased lines."

    In summary, it is probable that Ofcom will have thought about the issues and put the leased line exclusion in for a very good reason. it might be good for BT in the short term as well. The leased line exclusion might also be the better solution in the longer term for the business connectivity (leased line markets). No speculation is given here on the optimum solution. Until the opening of duct for leased lines is thought through, then the best outcome is not clear.

    Finally, the profits BT makes on leased lines is probably fully reported on in the BT regulatory accounts (this relates to an earlier comment about leased lines being cash cow).

  11. Roger Steele says:

    This discussion is about over, I think. This consulation by Ofcom is worth reading.

    http://stakeholders.ofcom.org.uk/consultations/bcmr/

  12. Rob Bratby says:

    It is going to be interesting to see the impact of today’s announcement by Fujitsu: http://wp.me/p1fH0I-eH

  13. Roger Steele says:

    If anyone is still following this discussion… Please note that Ofcom has issued a consulation on the the business connectivity market. This covers Leased Lines and the remedies required for them. This states that Passive Infrastructure Access was not a remedy last time teh market was examined, but asks whether this should be a remedy this time.

    If anyone thinks that duct and dark fibre are relevant to leased lines and business connectivity, then this consulation is of interest. This is the logical approach, rather than trying to change the current BT Fibre and Duct contracts – as these PIA contracts were defined as required-service remedies for a different Market to leased lines and business services.

    Please look at http://stakeholders.ofcom.org.uk/consultations/bcmr-inputs/
    and 1.47 onwards and Question 18.

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