Proposals for WBA charge control Consultation document and draft notification of decisions on charge control in WBA Market 1ConsultationPublication date:20 January 2011Closing Date for Responses:31 March 2011WBA Charge Control ProposalsContentsSectionPage1 Summary1 2 Introduction5 3 The charge controlled WBA product(s)13 4 Form and duration of charge control33 5 Charge control design42 6 Cost of capital78 7 Legal Tests113 AnnexPage1 Responding to this consultation116 2 Ofcoms consultation principles118 3 Consultation response cover sheet119 4 Consultation questions121 5 Draft Notifications123 6 Determination of base year costs (2009/10)135 7 Ofcoms modelling analysis145 8 Returns in the broadband market- Summary report prepared for BT by dotecon177 9 BTs voluntary commitment in Market 1184 10 Glossary185 WBA Charge Control Proposals1Section 11Summary Introduction1.1Broadband is increasingly central to the lives of UK consumers and the success of businesses. It allows consumers to access and interact with a wide range of content and services and allows businesses to exploit new market opportunities and more efficient operating models. Competition has driven the success of the current generation of broadband services. The result has been greater choice, innovation, lower prices and high levels of broadband adoption. 1.2Competition in the provision of these retail services depends on effective competition at the wholesale level, or, where this is not occurring, effective regulation. The Wholesale Broadband Access (WBA) market sits between the Wholesale Local Access (WLA) market and the retail broadband market11.3In our review of the WBA market (“the 2010 WBA Statement”). The WBA market relates to the wholesale broadband products that communications providers (CPs) provide for themselves and sell to each other. It is important for consumers because these services are one of the building blocks of the retail broadband offers that consumers buy. 21.4The aim of these regulations is to enable CPs to purchase wholesale products from the dominant providers at prices that allow them to compete effectively in the provision of retail services. In Market 1 made up of exchange areas in which BT is currently the only provider of wholesale broadband services we have decided that BTwe found there is effective competition in areas covering almost 80% of the UK premises. However, in just over one-fifth of the UK what we call Market 1 and Market 2 we concluded there is not sufficient competition and so we have imposed regulation to protect consumers. 3We propose to control BTs 8Mbit/s IPStream Connect productshould also be subject to a charge control. This consultation document explains Ofcoms proposals for the WBA charge control in Market 1.1.5In Market 1 BT sells several WBA products, each with different speed options41The WLA market concerns access to the connection between the consumer and the telecommunications network. As such it is critical for all fixed line services. We published our conclusions on our review of the WLA market on 7 October 2010. . However, we propose to charge control only BTs 8Mbit/s IPStream Connect product. CPs use this product to supply 86% of WBA services in Market 1. Therefore, controlling IPStream Connect directly protects most consumers in Market 1 and constrains BT from excessive charging on the other products. Also, 8Mbit/s is the maximum downstream speed available in Market 1 and the most used by end users in Market 1.http:/stakeholders.ofcom.org.uk/binaries/consultations/wla/statement/WLA_statement.pdf 2http:/stakeholders.ofcom.org.uk/binaries/consultations/wba/statement/wbastatement.pdf 3Our decision on the WBA charge control is addressed to BT plc. as a whole. It should be noted that however that the charge controlled product is supplied by BT Wholesale (“BTW”). 4IPStream Connect, IPStream Central and DataStream.WBA Charge Control Proposals21.6In Market 3, where there is effective competition, BT provides services at speeds up to 24Mbit/s by using ADSL2+ technology and up to 40 Mbit/s where BT has rolled out fibre to the cabinets (and in some cases to the end user premise). These are called 21CN services. Currently BT has no 21CN deployment or plans to deploy 21CN in Market 1, although it is possible it will start to rollout 21CN in Market 1 exchanges within the charge control period. We propose the charge control should apply only to the 20CN IPStream Connect product, and not to any 21CN services BT may roll out during the charge control period. We believe that this “anchor pricing” approach will give BT the incentive to invest in new technology when it, for example, lowers costs, or provides higher quality services (or both) for which consumers are willing to pay. We propose a three-year RPI-X charge control, with a single charge control basket1.7We propose an RPI51.8We propose this charge control should last for three years, i.e.