Quocirca's Straight Talking: Telecoms regulation explained

How does it affect businesses?

How does it affect businesses?

Quocirca's Elaine Axby demystifies the often complicated world of communications regulation - and explains why it's more important than ever for business users to shop around before choosing service providers.

The telecoms regulatory 'machine' is a vast one; UK regulator Ofcom's budget alone exceeds £100m and most telcos and larger internet service providers employ swathes of people across Europe, hoping to influence their national regulators and the European Commission.

To understand why this area attracts so much attention and the likely impact on business users, we need to look at some recent history and appreciate the mechanics of how the regulatory process works.

Telecoms markets have been opened up across Europe since 1999 and competition has developed. In the UK, large business users have benefited but competition has been slow to filter through to smaller businesses and outside major population centres. Regulation sets out to allow as much freedom as possible for operators to put together innovative services for customers whilst forcing BT to open up its network and give new entrants wholesale services to allow them to compete. Both of these concepts - reducing retail regulation and improving wholesale services from BT to its competitors - have a bit of a chequered history.

Historically, all of BT's retail services for business and residential consumers have been subject to regulation. Today this regulation is applied to a relatively narrow set of BT's services. Other services such as national and international virtual private networks and data services such as frame relay are free of retail regulation, as are all international calls for businesses. The freedom given to BT should allow it to be more competitive and other suppliers should respond.

On the wholesale side, progress has been made in giving BT's competitors access to the incumbent's network but getting that access is often dragged down into trench warfare that takes years to get anywhere. For example, BT has been obliged to offer its basic line rental on a wholesale basis for almost three years now but any large scale competitive offers have had to wait for a final 'fit for purpose' wholesale offer available in January this year. Why the delay? You might well ask. BT would say it takes time to get these things to market. Competitors would say the offer isn't good enough - often it's the operational process such as ordering and fault reporting which give the biggest problems. Ofcom continues to work with industry to get these processes right.

The question therefore is: have business users got a better deal as a result of this deregulation? In many ways, yes - there's clearly much more choice and a better deal for many, particularly in the larger enterprise space. But it's still not good enough - the Communications Managers Association in its response to an Ofcom consultation in February this year clearly says competition isn't working. Ofcom's own research indicates that businesses think that regulation does hamper negotiation when it comes to big contracts and BT still gains between 40 and 70 per cent of such contracts, depending on the types of services tendered for.

What should buyers of telecoms services be looking for now? Certainly, you should keep under very strict review your calls budgets - smaller businesses could very likely benefit from moving all of their calls to one of the newer calls providers. Since the deregulation of international business calls last year, these should be cheaper too - again, shop around. Smaller businesses should also start looking at potential alternative suppliers for line rental services, although the savings aren't huge - around 10 per cent seems a typical figure.

Voice over IP (VoIP) services are also fast gaining ground and here businesses need to lobby Ofcom to get its act together. There is a regulatory discussion going on about IP and so-called 'next generation networks'. Despite a huge amount of business interest in VoIP - Quocirca research towards the end of 2004 found that more than 90 per cent of businesses are either using it already or think they will at some stage - the regulatory discussion in next generation networks is rather tentative. Regulators are unsure as to how to match new networks with the traditional regulatory model and how in the long term they might be regulated.

There might still be further deregulation of retail markets - but don't bet on it in the near term. BT is still restricted in its ability to offer discounts across the full range of services but further deregulation here will need more consultation, so don't expect much more progress until 2006.

On the mobile side, there is virtually no regulation of retail prices paid by consumers. The wholesale price paid by other operators for calls to mobile phones has been strictly regulated for the past few years, and has driven these prices down. An area of concern remains the price of mobile calls made abroad, the so-called 'roaming' prices. Regulators have struggled for years to find a way of addressing high charges for roaming.

The underlying problem is the need to bring down the wholesale prices operators charge each other but here regulators can only affect the prices being charged in the home country and this doesn't benefit the home subscribers. Ofcom could force mobile operators in the UK to reduce the prices they charge overseas networks but it has no power to get overseas operators to do the same so that prices for consumers in the UK can come down. This issue is now being studied at the European level but it's been slow progress so far and there is no easy solution on the cards.

So what should IT managers do to use the regulatory regime to their advantage? Certainly, contribute wherever possible to the regulatory debate to ensure that user needs are at the forefront of regulators' thinking, in particular in the IP world. The regulator also needs to be encouraged to make some effort to improve information available to customers - an increasingly competitive market also has a propensity to add to greater confusion and less clear offers.

From a commercial perspective, it pays to shop around. Over the next year or two, alternative suppliers should be able to offer a better deal on a wider range of fixed services, incorporating line rental and calls. BT's announcement this week of a converged fixed/mobile service, 'BT Fusion', might lead to more packages of this type being available for businesses.

Those operating on a pan-European level should find some greater consistency in the services enabled by regulation - the obligation on incumbent operators to rent lines to competitors is gradually spreading out to most of Europe, for example. However, don't expect an explosion of line rental offers in the very short term - alternative providers are still finding lots of problems with operational issues and are somewhat wary of promoting large scale take-up.

The regulatory regime does matter - enabling competition allows innovation to develop, and prices do come down. It's a hard slog however, and choice puts an obligation on customers to check out what is there.