Experts question price of unbundling

As Oftel announces the latest stage in unbundling of the local loop, experts question whether the process will really end BT's monopoly of telephone lines in the UK and lead to cheaper broadband.

There has been a huge amount of criticism of how the unbundling process has been implemented, with five major operators withdrawing, blaming delays and cost. As Oftel announces the final prices for unbundling, one analyst predicts more telcos will desert the process and questions how much profit there is for anyone other than BT.

The promise of unbundling is out of kilter with reality, says Tim Johnson, analyst with research firm Ovum. "It is crashing up against reality and at the end of the day BT owns the network and while you can force them to make it available you still have to allow them to make a small profit."

With operators having to pay BT a yearly fee of £122 for each telephone line they take off the telco there is little profit for other operators, says Johnson, predicting a fresh glut of telcos quitting the process. "The price of rental means they will not make much profit. A lot of people on the list for unbundling will quietly drop out of it." Meanwhile BT will not find itself out of pocket. "BT has managed to persuade Oftel in its direction. It won't take long for them to make up on rentals the cost of connections," he says.

The current slump in telecoms shares will not help, Johnson adds, and anyone expecting unbundling to herald a new age of cheap broadband will be disappointed. "People will price up to what BT charges. BT will be price leader. The regulator will not be putting pressure on for prices to come down," he says.

Unbundling of the local loop is being implemented throughout Europe as a way to end national incumbents' stranglehold over telecoms networks and allow more competitive and ultimately cheaper Internet access.

Determined to be seen as acting tough on BT Oftel announced last week final prices for operators interested in installing their own equipment in BT's exchanges. Operators wishing to take a telephone line from BT to provide their own broadband services will pay a yearly rental fee of £122 for each line. There will also be a one-off connection charge of £88. On top of this operators will have to pay a £863 fee to connect their equipment within BT's exchange.

Oftel admits the rental charges are higher than originally planned in May, but claims they are in line with the rest of Europe. "The prices are based on what it costs to run the local loop. It has gone up slightly, but overall it is what people were expecting," says an Oftel spokeswoman.

In a separate announcement BT admits that its wholesale rollout of ADSL -- on which ISPs are reliant until the local loop is unbundled -- is suffering delays. "When we launched the wholesale product we had 23 ISPs taking service. Now there are 110," says a BT spokesman. "Some ISPs will see their allocation decrease."

BT is currently making 300 installations per day and hopes to ramp this up to 750 by March.

AOL is not impressed. "With unbundling not happening until July at the earliest and then only in 600 exchanges there is a need to fix the present ADSL rollout," says an AOL spokesman. "The decision to scale back is a major concern and reducing the number of lines available to ISPs affects the ability to roll out cheaper access in the future."

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