Monday, November 22, 2004

Local Loop Unbundling

The UK telecom regulator Ofcom published a long-awaited report last week, widely seen as a further challenge to BT's near-monopoly over the local telecoms network. Ofcom's action is partly triggered by a view of technological change, leading to a key forking point: BT opportunity versus regulator opportunity.

"There is a fundamental change going on from a technological point of view. If that had not been going on, Ofcom might not have been so keen to come up with a brand new regulatory framework."
Emma Gilthorpe, head of regulatory affairs at Cable & Wireless (BT's biggest rival)
BT opportunity:
"Rival operators stressed that they did not want BT to make life more difficult for them by adopting a closed path with its new network which would allow it to leapfrog its rivals on technology and cost structure."
Mark Page, head of telecoms at A.T. Kearney
Regulator opportunity:
"It's a timely intervention. The whole network is being built from scratch so it is an ideal opportunity to design it with 'equivalence' in mind."
Richard Sweet, head of regulation at Thus.

All quotes taken from report "The New Age of Communication: Ofcom forces BT to overhaul and open up" by Robert Budden in the Financial Times, November 20th 2004.

Ofcom's actions have already driven a wedge between BT Retail and BT Wholesale, and create an internal conflict of interest inside BT. For example, if BT Retail were to invest in local loop unbundling, it would be able to compete more vigorously with rival telecoms retailers, but this would damage revenues at BT Wholesale.

From the point of view of the service-oriented enterprise, this is an extremely important issue. The design (geometry) of the service network - how services are bundled or unbundled, where the added-value is created and controlled - becomes a strategic issue across the industry, and a matter for close regulatory scrutiny. In regulated industries, the players look to get maximum advantage within a given set of constraints, while also lobbying for advantageous regulatory changes. In unregulated industries, the players simply look to get maximum short-term and long-term advantage. In both cases, the design of business services is now much too important to be regarded as merely a matter of technical efficiency, to be delegated to technological specialists; it is now (more clearly than ever) a matter for the business itself, affecting the profitability and sustainability of the business as a whole.

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