One of Ofcom's key challenges over the next decade will be to ensure that telcos such as BT do not abuse their powerful position in the UK's telecoms market, according to a government report published on Monday.
Electronic Networks: Challenges for the Next Decade, produced by the Cabinet Office Strategy Unit, considered how government and regulators should respond to changes in the electronic network sector over the next ten years.
One of its key conclusions is that network operators who are dominant today are likely to enjoy similar muscle in 2012, as the Strategy Unit does not believe that any new nationwide networks will be built over the next decade.
Given this, Ofcom -- which will replace five existing regulators in 2003 or 2004 -- must be vigilant in preventing these companies from abusing their market power and in ensuring competition at both the wholesale and retail level, the Strategy Unit advises.
"Innovation is expected to result primarily from the evolution of existing networks rather than the creation of new networks," says the Strategy Unit in its report. The report also predicts that wireless networks such as Wi-Fi and 3G will merely complement, rather than replace wired networks.
The Strategy Unit identified power-line broadband and ultrawideband as two technologies that could disrupt the current market set-up. However, it believes that most network innovations over the next ten years will still be based on today's DSL and cable technologies. One reason for this is that it is now much harder to raise capital in order to roll out new networks.
Despite the introduction of local-loop unbundling, there is little competition in the UK's wholesale telecoms market. BT enjoys a dominant position in the supply of wholesale ADSL, and also owns the only ubiquitous nationwide telephone network.
BT competes with cable firms ntl and Telewest in the supply of telephony and broadband services in some parts of the UK, but there is no competition between the two cable firms as their networks do not overlap.
The Strategy Unit does believe there will be significant competition at the service and applications level over the coming years, and in terms of the types of devices that use the existing networks. For this reason, it predicts that Ofcom should be able to reduce the amount of regulation at this level -- as there should be enough genuine competition to make tight regulation unnecessary -- while keeping a firm grip on the infrastructure level where it will have to use regulatory measures to keep companies with significant market powers in check.
Electronic Networks: Challenges for the Next Decade was commissioned by the prime minister, Tony Blair, and is one of the pieces of research that Ofcom will be expected to refer to when considering regulatory action.
The prime minister welcomed the report and Lord Currie, Ofcom chairman, has said that he will be discussing it in detail with fellow members of the regulator.
"This report on electronic networks clearly sets out the most significant issues which we will face over the next decade. I hope it will prompt a wide-ranging debate, and look forward to receiving views on how best we ensure a vibrant and competitive market in the UK," said Blair in a statement.
The report can be downloaded from the Strategy Unit Web site.
Interested parties have until 28 February 2003 to submit any responses to the report to the DTI.