ADSL only suitable for BT, says research firm

Only BT will be able to afford to roll out ADSL even after the local loop is unbundled, according to a study from research firm Ovum.

The findings will come as a blow to those who regard post-unbundled Internet services as a means to finally end the stranglehold BT has on the UK telecoms market. Ovum's research compared the four main broadband technologies -- DSL, fixed wireless, cable and fibre -- and concludes ADSL will not be a viable alternative for rival telcos.

"ADSL, for those who don't own the local loop, is not as cheap as people think," says Ovum analyst Yum Petkovic. As well as having to pay costs in order to get equipment installed in BT's local exchanges -- for example, every company must pay the telco to undertake a survey of the exchanges it wishes to use -- rival telcos will also continue to pay BT rent for the use of the local copper. "ADSL is not a viable long term alternative," she says.

ADSL is one of the methods for delivering broadband Internet services, which will give consumers fast, always on unmetered Internet with added extras like video email, video advertising and even video-on-demand. It can currently only be purchased wholesale from BT, but will be widely available to other operators when the local loop is finally unbundled next summer.

Oftel is quick to sing the praises of unbundling and remains convinced about the merits of ADSL. "Thirty major players have signed up to take over the local loop and they will be able to make a profit with it," says an Oftel spokesman. Despite this, Oftel is allowing BT to make a 14 percent profit on its rent of ADSL equipment.

For rival telcos burdened by the costs of ADSL, one way to ensure profit will be to pass the costs of ADSL on to consumers. However GartnerGroup research suggests users will not be prepared to pay more than £25 a month for DSL services. BT is charging £39.99 for its Openworld offering and experts believe it is unlikely rivals will undercut this. WorldCom has already withdrawn from the unbundling process citing "financial reasons" for its decision.

For companies keen to cash in on the broadband revolution, Ovum suggests that wireless may be the way forward. The government is due to auction forty broadband wireless licences later this autumn. Petkovic sees wireless as a much cheaper alternative for new entrants and is hopeful the auctions will not attract the over-inflated prices paid for 3G spectrum.

"Wireless is a good alternative, with low upfront costs and is quick to market as operators just have to install antennae on buildings. It can be deployed in a matter of months," she says.

Fibre to the home is another alternative and for operators not prepared to spend money and time digging up roads there is a cheap way of getting it to consumers via sewage ducts, says Petkovic. "Fibre also has the advantage of being a long term solution," she says.

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