Analysis: How far will unbundling reach?

Not as far as people's houses if the current state of the market is anything to go by

Unbundling of the local loop is a phrase that does not exactly roll off the tongue but some are questioning now if it can roll out at all, with all but a small handful of operators withdrawn from the process and those that remain left arguing that costs are prohibitive.

An unbundled local loop would provide much needed competition to BT in the crucial last mile of copper into houses and businesses, but there are serious questionmarks over whether that is achievable given that BT will have to be so crucially involved in all decision-making, effectively overseeing its own downfall.

The crucial question is whether there can now be any serious competition to BT given that so many firms dropping out of the process: out of the original 35 players only a handful are left. Telecoms watchdog Oftel, which came up with the idea of unbundling and has been charged with organising the process, won't give numbers. It won't give a list of the original players and it won't give a list of who is left. "We have been asked by the companies themselves not to divulge that information," an Oftel spokeswoman explained.

ZDNet's own quick survey of a few of the companies still involved in rolling out services via broadband reveals that there is unlikely to be a product for the consumer mass market. Atlantic Telecom is planning to launch business services in Manchester but is hedging its bets on farther outlay. "No-one knows what will happen when local loop unbundling is finished," said an Atlantic Telecom spokeswoman. "We have a finite amount of cash and will wait and see how we get on in Manchester."

Fibernet is planning to develop a nationwide service but it will again have a specific niche -- for ISPs and SMEs (Small and Medium-sized Enterprise). According to Fibernet's Nigel Pitcher the firm only needs to take services from around 220 of the planned 5,000 unbundled exchanges, starting with Leeds, Bristol and Warrington in the next four months.

Both Fibernet and business telco Redstone have circumvented the knotty and expensive problem of how to get equipment inside BT's exchanges by opting instead for distance co-location -- basically putting equipment as near the exchange as possible in any building or street cabinet that will have them. For Energis, one of the more vocal critics of the unbundling process, this is not an option. With ADSL already suffering from a short (3km) range, moving even farther away will mean even worse quality of services.

Oftel and the government insist that when it comes to unbundling smaller is better, as the fewer number of operators there are involved in the process, the better chance they stand of getting into the exchange they want. However Energis claims that, because of the lack of interest, it will now cost each operator £150,000 just to set up in each exchange, a cost which has left it looking at alternatives to unbundling such as leased lines and wholesale products.

BT admits that costs will be higher the fewer operators are involved but insists that it has to cover its overheads. Meanwhile a fresh row is brewing over the availability of wholesale products, which Energis argues are three times as high as they should be. With disputes over where in the network operators can connect to services, it looks set to become the broadband equivalent of the Friaco dispute, which eventually saw operators offered a full end to end unmetered narrowband product.

While the Friaco victory suggests operators may eventually get their own way over wholesale, the future of unbundling is less certain. What is clear is that the process is unlikely to be the broadband panacea once hoped and for the conceivable future will serve the business market rather than consumers.

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