Local Loop Unbundling in UK

Free broadband. That is the wave sweeping UK right now.

A few years back, people were offered free dialup Internet connection in UK. But you paid for the phone calls. Why would the Internet Service Providers (ISPs) offer Internet for free? What was there in it for them?

This could work because the ISPs bought bulk telephone time from British Telecom (BT), and asked BT to bill the customers using the Internet connection on the normal billing mode for those minutes which they used for connecting to Internet with that particular ISP.

Sounds confusing? This is how it works.

Freeserve was the first company in UK which offered this service. Until this company was set up in 1998, Internet access in UK was metered. One had to pay the costs of both the telephone calling time plus the ISP's charges per minute - something similar to what it is now in India. All that Freeserve did was to do a deal with BT and promised that its customers will call Freeserve's numbers at least one million minutes every month (say), and negotiated a price for the same (say 10p a minute), and guarantee this payment to BT whether or not Freeserve's customers utilised these many minutes or not each month. What BT will guarantee in turn is that it will charge its customers calling Freeserve's numbers the normal rate (say 25p per minute) and will pay that amount to Freeserve. Thus, the differential 25p - 10p = 15p per minute was what Freeserve was getting for providing its services.

Thus BT banked on Freeserve's marketing ability and innovative service it was offering its customers to make money. Freeserve was making its money by banking on the increasing demand for Internet dialup connectivity.

But this did not last long. More and more companies jumped in the fray making similar offers. The per minute call rate kept falling in UK, thus squeezing the differential. Some competitors offered flat rate deals for unlimited time.

Then BT started offering DSL services and that almost completed wiped out the above business model. DSL is of course an excellent model. It doesn't clog up the local loop allowing one to make a phone call as well as an Internet data transfer simultaneously. But BT had an undue advantage. Only BT owned bulk of the local loop across the country. BT could take its own sweet time to offer DSL to specific areas. If someone had to challenge BT, they had to start laying their own lines, copper lines or fibre optic lines or coaxial cable or something else.

Then, the telecom regulator in UK (Ofcom) started looking at unbundling the local loop. This proposal - despite resistance from BT - was accepted by the Government and the roll-out process is going on now.

Thus we now have the rush from innovative companies looking at offering free Broadband connectivity. Pure mobile phone operators as well as Cable and/or DTH Television players have also decided to offer a free broadband deal for their existing customers.

The convergence game in UK is far more interesting than anywhere else in the world. UK, for long, had a virtual mobile service model in place. Virgin Mobile (which is merging with NTL - cable TV operator who is also offering telecom services) was one such. It was using T-Mobile's platform to offer its branded services. The 'Freeserve' type model emerged only in UK. The ground situation in USA is very different that some of these models could not have developed in USA.

Now, let us take a look at the situation in India.

The landline in India is still dominated by government owned BSNL and MTNL. These companies have not looked at selling bulk minutes to any third party operator so far. Thus, Freeserve like model has not emerged in India. We have jumped straight to the DSL revolution. But BSNL and MTNL resist local loop unbundling, though the Indian regulator TRAI suggested this. BSNL and MTNL have strong Government backing. The Department of Telecommunication and the Minister for Telecom Dayanidhi Maran have strongly defended not unbundling the local loop. We will never get to see local loop unbundling in the next 5 years or so.

The mobile phone sector in India is booming. Thus no mobile phone operator has bothered to look at interesting models such as virtual mobile service. BPL talked about it at some point in time, but has since been taken over by Hutch.

India is probably looking towards a Wi-Max driven revolution to unshackle the broadband market and Internet connectivity.

The connectivity costs have come down. Airtel offers a Rs. 600 a month, unlimited download, but a restricted 128 kbps DSL connection. Certain other deals from Airtel offer connectivity at about Rs. 200 a month. BSNL offers similar services. None of the operators will be interested in offering higher bandwidth, higher quality of service for a while anyway. The TV distribution platforms have not shown any initiative in offering high speed Internet connection. Reliance has talked a lot, but is far from delivering an integrated triple-play or quadruple-play solution.

At times, a booming market by itself turns out to be bad for the customers. The service providers have little time to think of innovative and interesting solutions. They keep working hard, just to handle the massive demand for the basic services!