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Select committee told that BT must lose local loop

Cable & Wireless insist that making BT demerge its local telephone exchanges would benefit the UK telecoms industry, including BT itself
Written by Graeme Wearden, Contributor

Britain will never have a truly competitive and successful broadband market as long as BT owns the UK's local telephone exchanges. That was the message that a senior Cable & Wireless executive took to the House of Commons on Tuesday.

Cable & Wireless was attending evidence hearings being held by the Commons select committee on culture, media and sport -- which is considering the forthcoming Communications Bill. Graham Wallace, Cable & Wireless chief executive, told the select committee that the UK telecommunications industry is facing a crisis in which competition and choice will be drastically reduced over the coming months and years.

This can only be avoided, Wallace claimed, if BT is forced to split its phone lines and local exchanges, known as the local loop, into a separate organisation. This, he said, would encourage competition and ultimately benefit every company in the industry, including BT.

Wallace blamed BT for the failure of local-loop unbundling, a process that was intended to boost competition by allowing other operators to install equipment in or near local exchanges and offer telecom services to ISPs in competition with BT Wholesale.

Two months ago, Cable & Wireless aborted a joint initiative with Energis and Colt that would have seen the firms offering wholesale services from over 200 local exchanges.

"We withdrew because of the massive barriers that BT, either deliberately or not, were putting in our way, and also because -- doubtlessly coincidentally -- BT announced a cut in the price of its wholesale ADSL offering that made our joint venture unviable," said Wallace. He claimed that BT initially wouldn't hand over a comprehensive list of local exchanges, and that when a list did appear it was not sufficiently detailed.

Many other companies that initially showed an interest in local-loop unbundling have since withdrawn from the process. Recent figures suggest that less than 200 lines have been unbundled so far, which means that every ISP offering ADSL broadband today is reselling a BT Wholesale product. This, critics claim, means there is no effective competition at the wholesale level.

Cable & Wireless want the issue of BT's ownership of the local loop referred to the Competition Commission, an independent UK body that can investigate alleged monopolies and anti-competitive practices. "We are convinced that they would come to the same conclusion as us," said Wallace. "Demerging the local loop would also benefit BT, as it would mean it could be regulated less in the future," he added.

BT's official position is that it staunchly opposes the idea. It has recently turned down offers for both the local loop and the company's complete fixed-line network -- and believes that continued ownership is vital to its future.

Adrian Flook MP, who serves on the select committee, said that he did not believe that the Cable & Wireless idea was viable, especially as the Communications Bill is expected to maintain the current regulatory approach to the telecoms industry.

In response, Wallace said that he believed there was some enthusiasm for the plan within government, but that there was also some concern that this might hamper the broadband industry in the short term. "We have sensed some appetite for this plan from ministers, but also worries as to how BT would react," Wallace claimed.

In its own, earlier hearing, BT insisted that local-loop unbundling had been successfully completed, but admitted that it was unlikely to play a significant role in the creation of Broadband Britain -- at least in the short term.

"It is wrong to expect new entrants, including those involved in local-loop unbundling, to do as much of the job as once thought. It is clear that BT will carry out a large part of Britain's broadband rollout," said BT chairman Sir Christopher Bland.

In his statement, Bland did suggest that BT would cut broadband prices over the coming months -- adding to earlier speculation that incoming chief executive Ben Verwaayen is planning a radical change to BT's broadband strategy.

Bland also warned the select committee that, unless the government contributes significant funds, some rural areas will not receive broadband for another 10 to 20 years.

BT is expected to make an announcement about broadband pricing when it delivers its financial results on Thursday.

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